5 Options to Resolve Tax Debt

The Internal Revenue Service (IRS) treats tax debt very seriously, and if you owe taxes, you should, too. Don't handle tax debts the way you might your other bills. The penalties and financial consequences for owing taxes can be devastating. You do have options.

1 - Savings

The first place to look for money to pay your tax debt is your savings. If you've saved up for a rainy day, it's time to use some of it to pay off what you owe. Treat outstanding tax debt as an emergency in this situation. It can lead to wage garnishment and other issues that you don't want to deal with in the long run. However, you'll still need to leave some of your savings for day to day emergencies. Examine your finances carefully and figure out how much you can pay to resolve your tax debt.

2 - Short Agreements

When you receive a tax bill and you're unable to pay it, contact the IRS. The longer you delay this, the harder it will be to get relief, and you'll limit your options for resolving tax debt. The IRS may offer you one of the two choices for making a full payment: 60 or 120 days. Added to the agreement are penalties and additional interest. This is the best way to resolve tax debt if you can make the payment within 120 days.

3 - Installation Agreements

The IRS becomes your lender, like a bank or credit card company, when you sign an installation agreement. It's also called a payment agreement or payment plan. Your outstanding tax debt accrues interest and penalty charges for the duration of the agreement. It's not the best situation, and the IRS recommends that you find other ways to pay your tax debt to save money. Interest rates are subject to change while the agreement is in effect, which makes what you'll actually pay uncertain. You can sign an installation agreement for as long as 36 months, and if you owe less than $25,000 in taxes, you can submit a request online using the Online Payment Agreement form.

4 - Bank Loans

It's an option, but a terrible one that you should avoid. Yes, the IRS recommends that you borrow money to pay down the debt owed to it. However, getting into more debt to get rid of a debt is not financially sound, even if the math appears to work out better. You're better off selling assets, personal belongings or finding ways to earn additional income. Taking out a bank loan to resolve tax debt is a trap that you don't want to fall into.

5 - Hire a Tax Attorney

If the prospect of dealing with the IRS keeps you awake at night, hire a tax attorney to resolve debt issues. They can work with the IRS to find the best possible solution based on your circumstances. Some attorneys are able to get a tax debt settlement on your behalf. Expect to pay fees for legal services, but it won't be anywhere near what you'll owe in an installation agreement.

Whatever option you choose to resolve tax debt, it's important to make a decision as quickly as possible. If you choose to hire an attorney, let them contact the IRS on your behalf, and don't try to do it yourself.