Your Top 4 Options If You Owe The IRS Back Taxes

If you recently were mailed a notice by the IRS informing you that you owe back taxes, and you agree with their assessment and are not appealing the decision, here are your top four options moving forward.

#1 Three Year Payment Plan

A three year payment plan, or guaranteed installment agreement, is one of the most popular options that the IRS offers when people find out that they owe back taxes. Essentially, the IRS gives you 3 years to pay back your taxes. You will have to pay any additional interest that accumulates on the amount that you owe during this time as well. This option is generally available to you if you owe less than $10,000 to the IRS.

#2 Extended Repayment Plan

If the payments in the guaranteed installment plan are not reasonable for you, you can also call and negotiate an extended repayment plan with the IRS. You will need to present the IRS with a detailed plan that shows exactly how much money you can pay, what day the payments will be made, and how long the repayment terms will be. As long as you are not asking for something unreasonable, such as paying back a dollar a month, the IRS should grant your request.

#3 Bankruptcy

If your taxes are not the only thing that you owe money on, and you find yourself in a dire financial situations, you can file for bankruptcy. This option should be the last resort. During your bankruptcy proceeding, you will have the opportunity to let the judge know why you think your taxes should be discharged. Back taxes are not automatically discharged when you go through a Chapter 12 or Chapter 7 bankruptcy, so you would have to work with your attorney in order to craft a plan to present your plea to the judge.

#4 Make An Offer In Compromise

Bankruptcy is not your only option if you don't have the ability to pay off your taxes right now and for some reason do not qualify for a repayment plan. If you find yourself in that situation, you can make an offer in compromise. To make an offer in compromise, you will have to fill out an application through the IRS. The application will give you an opportunity to offer to pay off a certain portion and percentage of your taxes while asking the IRS to forgive the remaining taxes that you owe. On the application, you will have to provide the IRS with your income information, assets information, and monthly expenses. The IRS will take your financial situation into consideration when deciding to accept or decline your application for an offer in compromise.

Generally, the IRS will require you to make an initial upfront payment that covers about 20% of the taxes that you owe with your written offer while they consider your offer in compromise.

It is vital that you choose a repayment option and inform the IRS of your decision. If you fail to do so, the IRS has the authority to seize money from your paycheck and even from your bank account to settle your debt to them. If you own any property, they can even place a lien against it to get back the money you owe them.  Discuss with your tax preparation specialist or attorney which option will be best for you, and move forward with a repayment plan.