Back Tax – There are Ways to Settle It

Do you owe back tax amount to the IRS? If answer is yes then you must be feeling that IRS has put you into never ending debt cycle. In case, you didn’t file tax on time, your account will be considered delinquent even if you’ve genuine reason for not filing in time. There are several ways you can settle your back taxes. You just need to have two things knowledge and smartness to use the knowledge. One of the most common ways to settle back taxes is Installment Agreement.

You can check with the IRS if you can pay a fixed amount every month towards your actual tax amount in less than 36 months. However, you’d need to pay some extra amount as interest. Most of the people take it as an easy way to get rid of actual amount in addition to debts. Installment Agreement is the best option for individuals who can pay the complete amount in one go however; they can pay easily manage their finances to on monthly basis. Other option that you can use to settle your back taxes is Offer in Compromise (OIC).

The option allows to pay complete outstanding in one shot however, payable amount will less than the actual amount. Offer in compromise sounds interesting as you’d be paying much lesser than actual outstanding but IRS will check you on various strict requirements before coming to any decision. The purpose of OIC is to find the amount that works for both taxpayer as well as the IRS. You will get IRS relief in OIC, if your total value of all your assets is less than the actual outstanding.

The next option doesn’t settle your back tax amount in real time however; it helps you to keep yourself away from collections. If you succeed in proving that you can pay the amount neither in lump sum nor in installments then your account will get a tag of “not currently collectible” then all collections activities such as letters and calls will be stopped. However, to get a flag of not currently collectible, you’d need to submit your financial statement at the end of every financial year. IRS will analyze your updated report to check if you can pay installments or not.

If you want some more time to pay the outstanding balance, here is your chance to show your smartness! Whenever IRS systems find that you’ve back taxes on your account, they will start sending automated mails and notices. Before taking any action against an individual, IRS sends several letters. Original assessment letter will state interest as well as penalties in addition to actual balance on CP-14 letter. Once you receive CP letter you can reply the letter asking for 45 days extension. You can repeat the same procedure and buy time. However, if you receive notice CP-4 from IRS, then it means IRS will take action against in a very short time.

Settling down back tax do put extra charges and interest however, its better to pay before IRS starts auditing for previous years as well.