Debt is stressful and can negatively impact daily life. Screening calls in fear of creditors and ignoring mail as it compiles is no way to live. Tax debt only gets worse if you ignore it. Plan to eliminate tax debt with the following potential strategies.
Pay down debts with a budget
Eliminating tax debt through a strict budget can be an effective long-term plan. Creating a budget is the first step to pay down difficult debts. Write down your fixed expenses, such as mortgage or vehicle payments. Next, determine the difference between your monthly income and your fixed expenses. Finally, find ways to reduce your variable spending, such as dinner and activities. Create a strict variable spending budget and stick to it, allocating leftover money to your tax debt.
Apply for a payment plan
Most people can tackle even large tax debts with small, regular payments. The IRS offers installment agreement plans to some taxpayers who cannot pay off their entire tax debt in one sitting. An installment agreement allows you to make monthly payments to the IRS if you pay off your debt within a specific time period. The IRS offers the following payment plan options:
- The short-term plan: 120 days or less
- The long-term plan: more than 120 days
A tax law attorney can help you apply for an installment agreement that is right for you. If you have a change in circumstances, then an attorney may be able to negotiate a better plan to fit your needs.
Agree to compromise
In certain cases, the IRS may agree to settle your tax debt for less than you owe. The Offer in Compromise allows you to reduce your tax debt if there is no way you can pay the debt down in a payment plan. This may also be an option if paying down your full debt will cause a serious financial hardship.
An attorney can help you determine your eligibility for this program and submit your offer. Once your offer is submitted, the IRS will look at your income, expenses, assets and overall ability to pay. You will still need to pay the remainder of your tax debt either in a payment plan or all at once. You may qualify for other options, such as penalty or interest abatement. The IRS only offer these debt forgiveness options in special circumstances, including the death of a loved one, jail or serious illness.
Unpaid state taxes are another matter. The Washington Department of Revenue (WDR) does offer payment plans and partial payment plans. You can make an offer, but the WDR will determine how much you can pay and what your monthly payments will be. Whatever your circumstances may be, you have resources for resolving tax debt.