Tax debt occurs when you fail to pay the appropriate amount on your taxes. This happens a couple of ways.
First off, you may miscalculate the amount of taxes you owe and therefore pay less than you should. This is one of the hazards of preparing taxes yourself. Another mistake that can lead to tax debt is inadequate record keeping. If you claim deductions and later are questioned and cannot prove that the deductions are legitimate, you may incur tax debt. Or you may be overextended in other areas of personal finance and be unable to pay all taxes due.
The following steps will help you pay off tax debt.
Things You'll Need
- A tax professional
- Receipts and other financial paperwork for the year in question
- Form 656 from the IRS
Own up to the fact that you have tax debt. Pretending it doesn't exist won't make it go away.
Contact a tax professional. A tax professional can help you avoid tax debt in the first place, or provide advice and resources to help you manage the debt once incurred. Since tax debt is a serious problem, you shouldn't attempt to handle it without professional help.
Gather all receipts and any other paperwork the tax professional requires.
File an Offer in Compromise (OIC) using the IRS Form 656 obtainable from the IRS. This is a partial payment option that can only be done under certain circumstances. Your tax professional can help you determine if you qualify and help you fill out the form.
Negotiate payments with the IRS. If you owe more than you can conceivably pay immediately, you may qualify for a payment plan.
Take steps to reduce your monthly living expenses and increase your income to better your overall financial situation and free up money to pay toward the debt.
Make your payments consistently, without missing a single payment. In due time, your tax debt will be completely paid off.
Tips & Warnings
- --Don't ignore tax debt. --Tax debt carries more severe consequences and penalties than other debts, so pay it first. --Don't send in partial payments unless you've received permission to do so. --Never falsify records or documents.
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