Tax Debt: Understanding your options
Every year thousands of Americans are expected to file tax returns for the prior year. Some file on time, file for an extension, file late, or maybe even not file at all. There are several reasons why you could owe the IRS. Owing the IRS is always a stressful situation to be in, especially when you don’t have the money to pay it back.
What is tax debt?
Tax debt is the amount of money you owe the IRS when you either forget to file, make a mistake on your tax return, or you made a certain amount of money in a certain year and now owe money on your tax return.
Whatever the reason may be, it is never a good thing to have to owe the IRS money. In early 2020 it was estimated that the average US tax debt was around $527 billion. (Brown, 2020).
It can be hard for people to make their tax debt a priority, especially when they have other types of debt. Fortunately, there are many options that help you resolve this issue.
Things you should know if you owe the IRS money
There are several factors that go into determining how the IRS handles your back tax situation. The major factor that they consider is if you filed or not.
If you were responsible and filed your taxes on time there is more of a chance the IRS will help you resolve the issue without too many penalties. If you did not file your taxes and owe the IRS money, it will be harder for them to help you resolve the issue.
If you have received a letter from the IRS, it is important that you take the time to carefully read the letter. Dealing with the IRS can be a lot worse than dealing with a credit card collection agency.
It is important to respond to the IRS right away. Most likely you will need to figure out if this is something you can solve on your own or if you need to hire a professional.
It can be very stressful if you need to hire a professional because that means more money. However, don’t let that play a factor in how you deal with the situation.
Does tax debt have a statute of limitations?
A tax debt statute of limitations is the amount of time the IRS has to file charges or collect an unpaid tax debt. There are a few factors that play a role in this amount of time such as if you filed a return on time or did not file at all.
Filed and still owe
If you filed your taxes and ended up owing back taxes the statute of limitations for the IRS to file charges or collect the tax debt is 10 years from the assessment date.
Did not file and owe
If you did not file or filed wrong there is no statute of limitations for the IRS to file charges to collect the debt. This means that there is no deadline for them to take action.
What happens if I don’t respond to the IRS?
There are many things that can happen as a result of failure to pay or work with the IRS to resolve your situation.
- Your tax debt amount keeps increasing due to interest and penalties.
- The IRS will take your tax refund and put it towards your amount owed.
- The IRS will file a Notice of Federal Tax Lien against your assets. This does not mean they will just take your property. It simply means that if at any point you sell your house, your car, or anything that is in your name, the IRS has the right to that money.
- The IRS can place a tax levy on your assets. This means that the IRS can seize your assets at any point to get the money that you owe. This includes your home, bank account, car, retirement funds, wages, and more.
There is usually no reason for these situations to happen. There are many ways that the IRS will work with you to help resolve your situation.
Tax debt relief options
One of the first steps in dealing with your tax debt is to find out how much you actually owe. You can do this by,
- Phone
- Online
- In-person at an IRS office
The second step in dealing with your tax debt is to figure out your options. There are several tax relief options for you to consider when dealing with tax debt.
- IRS Payment Plans
- One relief opinion is to speak with an IRS representative and see what payment plans they can offer you. This will help you determine how to pay back the debt that works best for you and your situation. You may need to consider speaking with a financial expert on how to budget in your monthly tax debt payments.
- Settle Your Tax Debt
- One option you can consider is to settle the tax debt amount with the IRS. This is where you negotiate an amount with them that you know you can pay. This is guaranteed to work and most of the time must be paid in a lump sum. Speak with a settlement expert today to learn more!
- File A “Currently Not Collectible” Status
- The third relief option is to ask the IRS to file for a “Currently Not Collectible” status. This means that at the moment you are unable to pay any portion of the money you owe to the IRS. This will be based on your income and expenses. It will also mean that the IRS will hold off on collecting or filing for the money you owe for a certain amount of time.
- There are things to consider when thinking about this option,
- It is temporary and does stop the amount you owe from collecting interest.
- It does not mean that your tax debt will go away or be forgiven.
- The IRS may also still file a tax lien against you.
Don’t wait, speak with a tax professional today about your options!
