Tax Debt Is Scary As Hell...But You Have Options

Tax debt and anxiety go hand in hand.

Losing sleep at night goes right along with it.

But what causes tax debt and, importantly, what can you do about it?

Let's break it down.

You Might Have Tax Debt If...

Everyone tries their best but sometimes life gets away from you.

The majority of people find themselves in tax debt because they underreported income or underpaid taxes (possibly innocently, but certainly, at times, purposefully).

We think we're above it all, but shit happens...job loss, illness, or divorce can lead to tax debt.

Regardless of why, the result is the same: tax debt.

It seems like getting out from under it is impossible, which leads to panic, denial, or procrastination.

Sometimes all three.

But don't lose faith, because there's good news: There's always a way out.

The IRS and State both offer several relief options that can help.

Options include installment agreements, including streamline, partial pay, and statute-based, and Offer in Compromise, just to name a few.

An Installment Agreement is essentially a payment plan that allows you to pay your tax debt over time, making paying it back feel more manageable.

It's a simple option for when you can't pay the whole thing off immediately.

It gives you the gift of time.

Installment Agreements

There are different types of installment agreements, which include:

Streamlined: Payment plans where you don't have to disclose your finances;

CSED Based: Payment plans based on the statute of limitations, which is the amount of time the IRS has to collect from you, and

Partial Pay: Payment plans where you never pay off the entire tax debt owed.

Offer in Compromise:

Well, if it isn't the famous (most times infamous) Offer in Compromise.

An Offer in Compromise allows you to pay the IRS only a portion of the total amount you owe. I've been able to negotiate deals through the OIC where my clients paid a very small percentage of the full balance owed.

BUT, and here's what you have to remember: most people DO NOT qualify.

Don't let the nationwide "tax resolution" companies convince you that you're eligible before they know anything about your individual circumstances.

The likelihood that an Offer will work for you is not high.

For those who are able to take advantage of it though, it's amazing.

The Takeaway

Tax debt is a lot to deal with, but it's not insurmountable.

It's crucial, though, to take control early, understand your options, and know what you need to do to get relief.

That said: To my fellow tax professionals and taxpayers, I'd love to hear your stories.

What strategies have you used to resolve tax debt?

What challenges have you dealt with, and how did you fix things?

Thank you for reading this week's Resolving Tax Debt Newsletter!