In a tough economy, one organization a lot of people end up owing a lot of money to is none other than the government. Owing more taxes than you can afford is an incredibly stressful position to be in. Fortunately, there are a number of different options you can take.
Asking for a Payment Plan
You don’t have to pay all your taxes back in full if you can prove to the IRS that you simply can’t afford it.
It’s called the IRS Form 9465, which is basically an application to the IRS telling them you can’t afford to pay all your taxes right now.
You’ll still pay them in full, but you pay them off in an installment plan instead. You outline the details of the plan in your form.
For the maximum chances of getting your plan approved, work with a tax professional to write your Form 9465.
Before you file your Form 9465, try to pay off as much of your taxes with a lump sum as possible. Explore all tax cuts and write-offs possible and get your total tax amount as low as you can.
The IRS is willing to work with citizens, but it wants to see that you’re making a real effort and not just trying to get away with paying less or paying later.
When Will the IRS Forgive Your Debt?
There are a few circumstances under which the IRS is willing to simply forgive your debt.
For one, if your total net worth falls significantly under your total debt, you have a good chance of getting your taxes forgiven.
In other words, if your total assets, including cash, stocks, retirement funds, home equity, etc all add up to $100,000 and you owe the IRS $150,000, then you have a good chance of having your taxes forgiven.
Also, if much of your debt comes from real estate or mortgage debt, you might qualify for debt relief under the Mortgage Debt Forgiveness Act of 2007.
Apart from these two conditions, the IRS is rather strict on getting paid. The only other real alternative is bankruptcy, which can often wipe out all your tax debt. Of course, a bankruptcy is a real black mark on your credit report and should only be used as a last resort.
If you’re having trouble paying the IRS, first talk to a qualified tax professional to explore all your options. Get your tax bill as low as possible through cuts and write-offs, then see if an installment plan is realistic.
If that isn’t going to work, then explore whatever avenues you can to get the taxes forgiven. If you really have no other alternative, then and only then should you consider bankruptcy. However, no matter what you choose, the IRS is one creditor whose debt you really can’t just ignore.