Taxes are a sure thing if you live in the U.S. And when you owe Uncle Sam money, it can make a dent in your finances – and everyday life. That’s why if you owe, you must pay IRS tax debt ASAP.
Thankfully, the IRS offers several programs and services that can help taxpayers who owe money. The method you choose will depend on your specific situation with the IRS. Knowing what to do isn’t always easy. First, analyze your situation and organize all of your financial documents. From there, you can determine if one of these payment methods applies to your situation.
The Top 5 Ways to Pay IRS Debt
1. Repay The Full Tax Debt Amount
The fastest and most efficient way to repay IRS debt is to pay the full amount you owe. This is not always an option for those who owe, which is why the IRS provides other programs and services to make paying your debt possible. Speak with a tax professional to see if you qualify for an IRS payment plan, Offer in Compromise, or other tax relief options.
2. Sell Your Assets (Before The IRS Takes Them)
You may have to say goodbye to your boat or sports car if you owe the IRS. By selling assets, you can apply the funds to your tax debt. Do this as soon as possible before the IRS issues a lien or a levy. If the IRS places a lien on your property, it will be more difficult to sell. A levy is even worse. The IRS can seize your assets and sell them at auction. Unfortunately, the full price won’t go toward your debt. The IRS will pay any expenses from acquiring your property, as well as the sale, before putting it toward your outstanding bill.
3. Withdraw From Your Investment Accounts
Do you have any investment accounts like a pension or 401k? If so, you could make an early withdrawal to pay off your debt. If you opt for this route, make sure you pay taxes on the withdrawn money or you could owe the IRS all over again.
4. Dip Into Property Equity
Depending on the housing market, taking out a home equity loan or refinancing your mortgage could help alleviate your tax debt. Just be sure that you can comfortably handle the additional monthly payment or you’ll be facing a new set of problems.
5. Use a Credit Card or Bank Loan
Using credit cards or bank loans to pay your tax debt should really be your last resort. The interest rates on many credit cards are now averaging 28% and higher, which is more than what the IRS charges. The only advantage to swapping one debt for another is that you’ll avoid IRS collection actions, such as wage garnishment or liens. Think carefully before choosing this repayment option.
Don’t Wait Until The Letters Pile Up
When the IRS sends you a notice demanding payment, it’s time to kick it into gear. The IRS wants you to fully pay the debt within 10 days of the notification. This is doable via any of the five methods mentioned above, but some options are better than others.
Don’t wait until the next IRS letter hits the mailbox to pay your tax debt in full! If you’re unable to use these resources or have a tax debt that you know you can’t pay, speak to a tax professional right away. They can negotiate with the IRS on your behalf and find an affordable solution for your situation.