How to Pay the Least in Tax Debt
Last updated on June 20, 2022
Taxpayers with tax debt will usually seek out ways to have their back taxes reduced, but IRS debt reduction programs have strict restrictions that make it difficult for taxpayers to qualify for. Taxpayers who do not qualify for debt reduction plans, such as an Offer in Compromise can use other available methods to reduce their tax liability.
Early Payment for Tax Debt Reduction
The IRS charges penalties and interest on any amount of back taxes that remains to be paid, including taxpayers who are in an IRS debt payment program. Paying a tax debt as soon as possible will ensure the least amount of interest is charged because of the reduction in the amount of taxes owed.
At the time of filing tax returns, it is important for taxpayers to know that even if they are unable to satisfy the entire debt amount, they should attempt to pay as much as they can. That will help to reduce the total tax debt amount because the interest charged, in total, will be less.
Offer in Compromise
Taxpayers whose financial condition does not allow them full payment of debt may consider requesting for an Offer in Compromise. Depending on various factors, including the financial condition of taxpayers, the IRS decides how much reduction can be made to facilitate payments of the remaining amount of debt.
Taxpayers are advised to read the qualifying factors of an Offer in Compromise carefully before applying for the program because most will not qualify because of its strict requirements. The IRS considers a taxpayer’s movable and immovable assets, bank accounts, savings and retirement funds, and stocks, among other things to judge a taxpayer’s ability to pay.
Postponing Payment of Tax Debt
Even though the IRS encourages taxpayers to pay the full back tax amount, taxpayers may choose to delay the payment of back taxes if they have a verifiable reason as to why they are unable to pay their tax debt. The Currently Not Collectible program is a debt payment plan where the IRS postpones the collection of back taxes because of their inability to pay the debt. Taxpayers should be aware that even under payment postponement programs, the IRS will continue to charge interest and penalties on the total debt amount yet to be paid.
Recent Posts
- Seeking Help for Back Taxes Relief
- When You File Late
- How to Protect Yourself from Tax Scams
- Tax Tips: How to Prevent Mistakes
- Common Mistakes Taxpayers Make in Tax Preparation
- Tax Debt Relief: How Back Taxes Increase
- Tax Debt Resolution Services: Facts and Fiction
- Planning Your Taxes: Managing Income
- Gaining Time to Pay Tax Debt
- Tax Debt Payment – Lump Sum or Installments