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Understanding how to pay back taxes allows taxpayers to avoid falling into debt or, failing that, how to stop it before the consequences get too dire. There are several ways taxpayers can pay back taxes.
Factors to Consider
Before choosing how to pay back taxes, taxpayers should consider:
Paying Back In Full
The simplest way to pay back taxes is to pay back in full. However, many taxpayers do not have the necessary funds. If that's the case, they have several options:
Installment Agreement
An installment agreement allows taxpayers to repay their debt in monthly installments. IRS and the taxpayers must negotiate the minimum monthly payments. The trick is to find the middle ground between IRS' desire to be repaid as soon as possible and the taxpayer's desire to pay as little as possible. The taxpayers will continue to pay interest, which will still accumulate.
Offer of Compromise
Offer of Compromise is an agreement between IRS and a taxpayer - if IRS lowers the debt, the taxpayer promises to repay it in full. IRS determines how much debt it is willing to forgive by evaluating the taxpayer's Reasonable Earning Potential - their ability to repay the debut under their current financial circumstances. Taxpayers will have to repay them debts either partially or in full.
Factors to Consider
Before choosing how to pay back taxes, taxpayers should consider:
- tax debt amount
- maximum amount they can afford to pay
- the number of assets they have
- how long it would take them to pay the back tax debt in full
Paying Back In Full
The simplest way to pay back taxes is to pay back in full. However, many taxpayers do not have the necessary funds. If that's the case, they have several options:
Installment Agreement
An installment agreement allows taxpayers to repay their debt in monthly installments. IRS and the taxpayers must negotiate the minimum monthly payments. The trick is to find the middle ground between IRS' desire to be repaid as soon as possible and the taxpayer's desire to pay as little as possible. The taxpayers will continue to pay interest, which will still accumulate.
Offer of Compromise
Offer of Compromise is an agreement between IRS and a taxpayer - if IRS lowers the debt, the taxpayer promises to repay it in full. IRS determines how much debt it is willing to forgive by evaluating the taxpayer's Reasonable Earning Potential - their ability to repay the debut under their current financial circumstances. Taxpayers will have to repay them debts either partially or in full.
