There are various factors that impact the amount you need to pay in tax debt, including the timeframe the debt goes unpaid. Many times, taxpayers have to pay more in tax debt because they delayed payment. As both penalties and interest are charged each month, they can substantially increase the original amount of the debt. The IRS begins charging penalties and interest from the day after the tax deadline.
Resolution Time for Tax Debt
The longer a tax debt remains unpaid increases the amount owed, thanks to mounting penalties and interest. As these fees inflate the total tax debt amount, you pay more in penalties and interest. Therefore, when you owe back taxes, make sure that you calculate the amount of penalties and interest you will need to pay. It is important that you resolve your debt as early as possible to avoid paying back an enormous amount.
Often, taxpayers do not resolve their tax debt because they are unable to pay the entire amount they owe. Postponing payment not only increases the total tax debt amount over time, but can also present the threat of IRS collection actions. If you cannot pay the full tax debt amount at once, you may want to apply for a tax debt reduction plan from the IRS, such as an Offer in Compromise or a Partial Payment Installment Agreement. These plans allow you to more comfortably resolve your back taxes, without paying the full tax debt amount or paying it back all at once.
Choosing the Wrong Payment Plan
When resolving a tax debt, it’s important to choose a payment plan that you will qualify for. In an effort to discourage taxpayers from pursuing for the wrong resolution agreement, the IRS may penalize those who apply for a payment plan that they clearly won’t qualify for.
When choosing a payment plan, make sure that you meet the basic qualifying criteria. Also check to see if you can fulfill the resolution requirements of the plan you’re applying for. The IRS terminates a plan if a taxpayer does not comply with every condition. Therefore, if you choose a payment plan with terms that you ultimately won’t be able to meet, you may end up paying more in tax debt and complicating your case.
When you’re resolving a tax debt, it’s important to take the correct steps from the beginning. You may want to seek professional tax help if you’re dealing with a large debt and need to find the right payment plan.