When you owe taxes to the IRS and cannot afford to pay them right away you are going to have to make a choice. The choice you will have to make is whether you will try to settle your tax debt for less or if you will pay the taxes you owe through installment payments. The IRS will never tell you to try to settle your taxes because this means they will collect less money, but the option does exist and people do settle very frequently. Your decision to settle vs. pay in installments should be determined by your current financial situation and your likely future financial situation. Below are reasons for when you should settle and when you should pay your taxes owed.
When you Should Settle Back Taxes Owed
The IRS typically accepts settlements from individuals if they have a very poor financial situation. The IRS understands that individuals do need a basic amount of money to maintain a certain standard of living and they do not expect individuals to pay an amount that would leave them with less than the minimum amount to not let them meet that basic standard of living. In order to be successful in settling your back taxes for less than you owe, you will have to prove to the IRS that the amount you are willing to settle for is equal to or greater than the amount that they would ever be able to collect from you, even if they used forced collection mechanisms. The IRS tries to collect as much money as possible with the smallest amount of effort and the IRS knows that it does cost them money to consistently pursue non payers and they do accept the fact that sometimes it is better to accept a settlement from that individual and just write off the difference.
When you Should Pay Back Taxes Owed through a Payment Plan
Most individuals that cannot pay taxes owed at the moment they are due are required to enter into a payment plan with the IRS. Individuals will be required to enter into a payment plan if the monthly payments that they make will not leave them with less than the required amount of money they need to live. The monthly payment required is an amount that is greater than or equal to an amount that will pay off the total amount of tax owed plus interest in a period of 3 years or less. If that amount creates too much financial strain on the individual they may be able to settle their tax debt, if it doesn’t create excessive financial strain, they will be required to enter into a payment plan.
What most people don’t know is that the IRS has a method for every individual that owes taxes to the IRS to get back onto good terms with the IRS no matter what their current financial situation is. The IRS deals with hundreds of thousands of individuals every year that cannot pay their taxes owed and have therefore created several dozen methods of settlement and payments available. IRS tax code is extremely complex and it is recommended that individuals in tax debt contact a tax professional and have them figure out the best payment method or settlement method. The benefits of tax relief professionals today greatly outweighs their costs and individuals typically end up paying less than if they were to try handling the situation on their own.