Tax Debt Help – How To Recover From A Tax Debt

By: Amy Lawson

If you owe the IRS some back taxes, you can solve this problem by using several ways. The government does not want to harass you and instead, it aims to collect the money that you owe it. Hence, instead of ignoring your tax debt, it is better for you to negotiate with the IRS in order to determine the amount that you can pay. If you want some peace in your life, you have to agree with the IRS on how you can recover from your tax debt by providing proof of your financial situation. You can recover from your tax debt by using the following ways:

1) Payment Plan

You can use small manageable amounts to pay your tax debt through the installment agreements that the IRS allows. These agreements do not usually last for more than 60 months. When the period you take to pay your tax debt is longer, you pay more in the end because the IRS charges you penalties and interest. If you agree to make monthly payments in order to pay your debt fully within a period of three years and the amount you owe does not exceed $10,000, the IRS guarantees to accept your payment.

2) Temporarily Not Collectible

If your financial situation is bad, the IRS temporarily stops collecting your tax debt. You have to provide proof that you are unable to pay any of the amount that you owe it because of financial difficulties. You have to provide the IRS with plenty of information regarding your assets and income when you undertake this process. The IRS gives you more time for finding a solution afterwards by approving the “temporarily not collectible” status but it does not solve the tax problem that you have.

3) Withholding

The IRS may use the withholding allowance that your job offers you to collect back taxes when it does not have any other options to resolve your tax debt. The IRS can use your paychecks to collect the back taxes that you owe it. Your employer receives a notice known as a “lock-in-letter” from the IRS. This notice specifies the withholding allowances that your employer permits you and a withholding rate for marital status.

4) Bankruptcy

Unfortunately, you can rarely wipe out your tax debt through bankruptcy. In most cases, you can resolve your tax problem by using better ways. However, you can recover from your tax debt by using Chapter 7 bankruptcy if other debts are causing you problems in addition to the back taxes that you owe the IRS. Chapter 7 pays your debts by liquidating all your assets. In order for you to get relief from paying back taxes, you have to meet additional conditions. You can use a payment plan to pay your tax debt if you use Chapter 13 bankruptcy.

5) Offer in Compromise 

Under this program, the IRS collects a lower amount than your tax debt by forgiving some of the amount that you owe it. You pay the amount that you can afford and the IRS wipes out the rest if accepted.

If you feel like financial recovery is not possible because your tax debt is substantial, the aforementioned ways provide an ultimate solution for you. All that you need to do is to call the tax helpline for more information on how you can use them to your advantage.