Taxes are a sure thing if you live in the U.S. And when you owe Uncle Sam money, it can make a ding on 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 help taxpayers that owe them 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 methods to find a way to pay IRS tax debt:
1. Repay the full tax debt amount
The fastest and most efficient way to repay the debt you owe to the IRS is to pay the complete amount you owe. This is not an option for many who owe the IRS, which is why the IRS provides other programs and services to make paying your debt possible. Speak with a tax professional to see which IRS payment agreements you may qualify for.
2. Sell your assets (before the IRS takes them)
You may have to say goodbye to your yacht or untouchable sports car if you owe the IRS. By selling assets, you can apply the funds to pay IRS tax debt. Do this as soon as possible before the IRS issues a lien. A lien will make it more difficult to sell your property if you wait too long.
3. Withdrawal 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 If you opt for this route, make sure you pay taxes on the withdrawn money or you could owe the IRS all over again.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, it may be difficult to take out a home equity loan or to refinance. If it makes sense for your situation and the market climate, applying home equity funds can be a viable method for paying your tax debt.
5. Use a credit card or bank loans
Using credit cards or bank loans may seem like merely trading one debt for another. However, the interest rate on credit cards and bank loans tend to be less than IRS interest and penalties.
Don’t wait until the letters pile up
When the IRS sends you a notice to demand federal 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 above to repay your tax liability. If you’re unable to use these resources or have a tax debt amount that you know you can’t pay, a tax professional can negotiate with the IRS on your behalf to reach an agreement. Don’t wait until your next notice letter hits the mailbox to pay IRS tax debt in full!