Realizing that you have back taxes to pay can be both frustrating and terrifying. You owe money to the IRS–now how are you going to get out of debt? This is particularly frustrating if you have back taxes stretching over a long period of time. The good news is, the IRS isn’t out to bankrupt you. Rather, they want to help you set up a payment solution that will help you pay off your debt and get your finances back on the right track.
Step One: Pay Off What You Can
If you owe back taxes to the IRS, the first step is to pay them off as soon as possible. The sooner you can discharge that debt, the lower your overall payment will be over time. Not only that, paying off your debt will allow you to move forward with financial freedom–a vital step that will help you with the clean slate you need for next time. Consider selling unneeded items to help reduce your debt to the IRS and ensure that you’re in a better position to take care of your future financial goals.
Step Two: Look Into Extensions
Need a few more weeks to raise the money you need to pay off your tax debt? Whether you need to sell an extra car or you simply need a few weeks of paychecks to come up with the funds you need, you’ll find that the IRS offers extensions of up to 120 days to help you discharge your tax debt without penalty. Make sure you file for this extension, rather than simply assuming that you have this long to pay off your debt, since failure to file for and receive an extension can lead to penalties and interest.
Step Three: Set Up Pament
The IRS, like most bill collection entities, understands that sometimes, you just don’t have the funds you need at hand. Fortunately, you can set up payments through their online payment plan system. This simple system will allow you to pay off the amount you’re able to pay each month in order to discharge your back tax debt and get caught up.
Step Four: Work with a CPA to Determine Future Tax Needs
Depending on your income, your profession, and whether or not you own your own business, you’ll find that your tax needs vary. Work with a CPA to ensure that you better understand your tax needs and how they’ll apply to your future years’ taxes. Often, you’ll find that it’s better to make payments quarterly, rather than having a big tax bill show up at the end of the year. You’ll also be able to check your withholding to make sure that it’s as accurate as possible, avoiding large tax debts in future years and ensuring smoother tax times moving forward. Working with a CPA can also help you shape a budget that will allow for repayment of those back taxes as quickly as possible.
Step Five: Make Future Tax Payments on Time
In order to keep the IRS off of your doorstep and everything moving smoothly with your overall financial situation, make sure that you’re making your payments on time each month. While it may be frustrating to watch your current income drain into past debts, you’ll find that once the debt is paid off, you feel a weight lifted from your shoulders.
If you’re struggling with back taxes and you aren’t sure how to take care of them, contact us! We’ll work with you to figure out what you really owe, come up with a payment arrangement that works for you, and shape your budget so that in the future, you can make better, more informed financial decisions.