Are you overwhelmed by rising debts and you seek a way out but lack ideas on what to do? If YES, here is exactly how to get out of tax debt fast in 4 simple steps.
Only few things could be more frustrating than battling to pay up your tax debt. When it’s huge enough, it will affect your family, your career, and your well-being.
And the longer your back tax debt sticks around, the more in penalties and interest you will have to pay. So, if you are in huge tax debt, it can only get worse if you don’t find a way to quickly get out of the quicksand.
If you are already wallowing in a mire of huge tax debt, you don’t have to brood endlessly over this. Getting out of the situation should be the first thing on your mind. And the good news is, you can pay your tax debts—no matter how much you owe—and move on with your life. But you can only accomplish that with dedication and perseverance. Do you really want to quickly get out of your tax debt? Then the following tips will help you achieve that.
How to Get Out of Tax Debt on your Own Fast in 4 Simple Steps
1. Pay what you can as soon as possible
A smart way out of huge tax debt is to pay it up immediately. If you don’t pay your tax bill by the due date, the IRS compound the interest on your back tax debt until the day you pay it up.
In the united states, the interest is 3 percent plus the federal short-term rate. That could add up to a big sum if you don’t pay up on time. And that doesn’t include the five percent penalties the IRS tacks on each month for back tax debt.
So, first, pay what you can by the tax due date. And if you already have a back tax debt, try to pay as much as you can as soon as possible. You can use a credit card for this. By paying off what you can, you will be reducing your total tax debt, thereby reducing your interest rate and ultimately making the rest of the debt easier for you to settle.
If you cannot pay or obtain a new credit card for whatever reason, then consider borrowing some cash from a friend or relative, then use that to pay as much as possible of your tax debt. Chances are that your friend or relative who borrowed you the cash will not charge you interest. And if they do, it will be much less than what you will have to pay as interest on your tax debt.
2. Pursue an installment plan
If you are looking to get out of your tax debt quickly, but still don’t have enough money to pay up a significant fraction of your outstanding debts at once, you can go into an installment agreement with the IRS (if you are in the United States) or your state’s revenue service.
If your total tax debt is less than $10,000, the IRS will agree to an installment plan if plan to pay it within three years and meet certain other criteria. But if you are looking to extend the time of payment beyond three years when you are owing less than $10,000, you won’t be approved for an installment plan. However, if your back tax debt falls anywhere between $10,000 and $25,000, you may be able to obtain a six-year install plan.
Whether you qualify for a three-year installment plan or a six-year plan, you must bear in mind that your minimum payment will be determined by dividing your total debt by the total number of months in the installment period. So, for example, if you are owing $27,000 in back tax debt, your minimum payment will be that amount ($27,000) divided by 72 (the total number of months in 6 years). In that case, you will be required to pay at least $375 monthly throughout the period.
3. Appeal for an extension
You can reduce the rate at which your tax debt compounds by appealing for a short extension by the revenue service. For example, you can file an appeal for a short extension of 120 days. If your appeal is granted, then you will pay no penalty fees over the 120-day period.
However, your monthly interest will still accrue. So, the extension only waives your monthly penalty, not your monthly interest. But the difference can be significant, especially if your tax debt is huge.
For example, assume you are owing $27,000 in tax debt and are granted an extension of 120 days (four months). If your monthly penalty is five percent of your debt, the extension will help you save $1,350 each month over the four-month period. That’s a total of $5,400!
An Offer in Compromise (OIC) allows tax debtors to settle their debt with the IRS by paying less than the total amount owed. If your tax debt is more than $25,000, then you can consider filing for an OIC.
Now, bear in mind that an OIC has it upsides and downsides. While it can help you cut down on your tax debts by a significant margin, it comes with certain terms and conditions that might not be to your advantage, such as losing your legal option of fighting your tax debt in court.