The IRS is one creditor that has the power to almost ruin your life over what you owe. The difference between the IRS and other creditors is that the IRS doesn’t have to go through the courts to garnish your wages, attach your bank account, or put a lien on your property. Although they’re initially easier to ignore, the IRS is one creditor you probably don’t want to owe. You should take care of your tax bill early in the process so as to avoid having significant tax collection actions taken against you.

Make sure you file your tax return, even if you know you’re going to owe. It’s better to owe than not to file. While you can’t be arrested for not paying your taxes (though there are other significant consequences), you can be arrested for not filing (known as tax evasion). If you need more time to prepare your tax return, file for an extension.

Send a Late Payment

If you don’t have the money now, but you can expect to pay it within the next four months, send your payment late. The IRS will typically send two balance due notices about 45 days apart before they ask you to make a payment arrangement. In the meantime, send part of the tax debt that you owe. It will reduce your balance by the amount you send and reduce any penalty and interest you’ll have to pay. If you don’t think (more…)

If you can’t afford to pay your tax bill right now, you might be able to put the tax debt on your credit card. That is, if you have a credit card with enough available credit. If you don’t have enough available credit on just one credit card, you can split up the payments onto separate cards, or pay some in cash or some on credit card.

Benefit of Charging Your Taxes

Paying your taxes by credit card keeps you from owing the IRS. You won’t keep getting tax notices and you won’t have to worry about the IRS ruining your credit. Unpaid taxes have negative consequences – the IRS may put a tax lien on your property, garnish your wages, or put a levy on your bank account. None of these are things you want to happen. Before your taxes become extremely delinquent, look at your option to put it on your credit card.

Convenience Fees to Consider

If you’re paying your tax bill by credit card, you don’t pay the IRS directly. Instead, the IRS uses a third-party to process credit card (and debit card) payments. There’s a fee for (more…)

There are negative consequences to owing the IRS. They’ll typically give you time to pay, but if you refuse or neglect to pay your tax debt, collection actions will commence. The IRS generally has 10 years from the date the tax was assessed to collect a tax debt from you. The period may be longer than 10 years, such as if there’s a temporary suspension because you asked for it or because you were making a negotiation with the IRS. Here are a few of the drawbacks of owing money to the IRS.

No More Tax Refunds

You won’t get any future tax refunds. If you have an outstanding tax bill and you’re due a refund, the IRS will keep your refund and apply it to your tax debt. This may be a strategy you use to eventually pay off the tax debt, but keep in mind the IRS will continue collection efforts until your taxes are completely repaid.

Federal Tax Lien

The IRS may put a federal tax lien against your property. The tax lien probably keeps you from selling that property until you pay off the tax lien. One of the biggest consequences of a tax lien probably is that it goes on your credit report. It may cause severe damage to your credit score and could then make it harder to get approved for new credit cards and loans until after you pay off the lien. The lien could also mean you have to pay higher security deposits for services you have turned on in your name. Because of the impact to your credit score, the lien may cause you to pay a higher insurance rate.

IRS Levy

The IRS may place a levy on your account or your wages. With a levy, the IRS has the right to actually take your property as payment on your tax debt. If they have a levy on (more…)

When you can’t afford to pay your taxes in full, one of your options is to enter a payment plan or installment agreement with the IRS. An installment agreement typically lets you pay off your tax debt over a period of time and avoid the extra interest and penalties you might be charged if you waited.

Fees for an Installment Agreement

The IRS charges a fee to set up an installment agreement. The fee is $105 if you plan to send your payments to the IRS but you can lower it to $52 if you let the IRS withdraw the payments from your bank account. You may be able to get a reduced fee of $43 if your income is within certain levels.

How to Set Up an Installment Agreement

You can set up your installment agreement online if your tax debt, including penalties and interest, is equal to or less than $25,000. You don’t have to wait until you get a bill from the IRS to set up your payment agreement. But, if you’ve already received a bill (more…)

Tax debts can be some of the hardest debts to get rid of. Bankruptcy may be an option for certain types of tax debts. Don’t get your hopes up, getting rid of tax debt, even in bankruptcy, is usually very difficult.

Which Taxes Can Be Discharged

The IRS has strict limits on which taxes can be eliminated in bankruptcy. First, tax debt is typically only discharged in Chapter 7 bankruptcy. If you file Chapter 13 bankruptcy, you’ll likely end up paying some or all your tax debt. Second, you can only typically discharge income taxes. If you owe any other type of tax, like payroll tax or self-employment tax, you cannot discharge it in almost all cases. Third, you must not have committed fraud on the tax you owe. For example, if you filed a tax return using the wrong Social Security number on purpose, you almost always can’t discharge the tax you owe.  Finally, the taxes to be eliminated in bankruptcy generally must have been “due and owing” for more than three years before you file for bankruptcy.

Tax Filing Requirements

The IRS generally must have internally acknowledged or assessed your tax debt 240 days prior to the day you file bankruptcy.

Your bankruptcy case may be dismissed if you do not file (more…)

If you have an outstanding tax debt that you can’t afford to pay, you may be able to negotiate a settlement with the IRS. Like other settlement industries for other types of debt, the tax debt settlement industry have had companies who ran scams on consumers. So, before you consult a professional to help with your tax debt settlement, here’s what you should know.

Offer in Compromise Details

The IRS term for a tax debt settlement agreement is called an Offer in Compromise or OIC. There are only a few circumstances that the IRS will accept a settlement offer from a consumer. First, the IRS almost always has to believe that you can’t pay the tax debt in full either in a lump sum or through an installment period during the collection period. This often means that your monthly income exceeds your living expenses, that you don’t have any assets or property that could be used to pay the tax debt, and that the amount of your tax debt and living expenses outweighs the value of your assets and monthly income. You’ll have to go with the IRS guidelines on reasonable living expenses, liabilities, and valuable assets.

Forms and Costs Associated With Tax Debt Settlement

It generally costs $150 to apply for an Offer in Compromise and you must file IRS Form 656 to apply. There are there options for paying the settlement if the IRS accepts your application. You’ll most likely have to (more…)