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So You Owe; Now What?

May 1, 2014

If you owe tax debt, you need to make a choice regarding which method of resolution to choose and whether to use help for achieving a resolution. The quickest and the simplest method of resolving back taxes is to pay the entire tax bill in a single payment. If that is not possible, you will need to apply for a tax debt payment plan. Plans such as Installment Agreements allow payment of tax debt in installments. Another payment plan, Offer in Compromise, allows reduction in tax debt to facilitate resolution.

Generally, you can easily resolve your tax debt yourself through a simple Installment Agreement if your tax debt is under $5,000 because in most cases, the resolution requirements are simpler. However, to resolve a larger or more complicated tax debt, taxpayers often consider getting reduction or removal of penalties, use bankruptcy to stop collection actions, use innocent spouse program to get relief from the burden of paying the tax debt, etc.

Even if no reduction in tax debt amount is possible, how you pay your tax debt can also affect how much you pay in tax debt. The reason is IRS penalties. When using the Installment Agreement, for example, if you choose to pay your tax bill over a longer period of time, you will incur more penalties because the IRS charges penalties every month. IRS penalties are a percentage of the tax debt amount (beginning from 0.5% up to 25%). Paying more in the first installment, therefore, is advisable to bring down the tax debt amount, and with it, the penalties and interest charged.

Tax debt resolution requires planning, which helps in paying less in tax debt. If a case allows, negotiation with the IRS can also achieve reduction in the tax bill. Therefore, it is wise to hire professional representation to plan, represent and negotiate a tax debt case. Tax lawyers and enrolled agents have knowledge of the various tax laws and IRS plans that can be used to achieve a faster and a more beneficial resolution. As the IRS is bound by tax rules, professional representation helps taxpayers to handle the IRS’ stance and negotiate with them to seek relief.

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