Avoiding Tax Debt & its Resolution

Last updated on January 16, 2023

Many times, taxpayers find themselves in tax debt because of the inaccuracies on their tax returns. Understatement of income, intentional or unintentional, alerts the IRS to the possibility of tax fraud. Therefore, taxpayers should double check their income figures and calculations before filing the return to ensure that they do not face any complications later.

Tax Debt Resolution Methods

Many taxpayers do not file taxes when they are required to because they do not have the money to pay their tax obligation. The failure to file a tax return leads to tax debt that slowly becomes more difficult to pay because of the accumulation of penalties and interest. It is important to file a tax return on time and to pay as much as you can. The remaining amount can be paid in installments or even forgiven, depending on the particulars of the case and the financial circumstances of the taxpayer. There are various tax debt payment plans such as an Installment Agreement, Offer in Compromise and Currently Not Collectible that assist taxpayers to pay or resolve their tax debt comfortably.

Low income taxpayers may use free help from the IRS in the preparation of tax returns. The Volunteer Income Tax Assistance (VITA) and the Tax Counseling for the Elderly (TCE) Programs offer free tax preparation and counseling to certain taxpayers, mainly those that cannot afford to hire paid services for tax preparation.

Resolution of Tax Debt

Even if taxpayers owe taxes to the IRS, they should not worry, but take immediate steps to resolve the debt. The benefit of an early resolution is that taxpayers pay a smaller amount in tax debt because they did not allow penalties and interest to accrue on the tax debt amount. The IRS will charge penalties and interest until the tax debt is paid in full. This is true even after a taxpayer has begun to pay the tax debt in installments.

It is most advantageous to pay the entire tax debt in a single payment, but most taxpayers seek to qualify for a tax debt payment plan because they do not have the financial capability to pay the tax debt in a lump sum. Payment plans allow resolution of tax debt with a partial payment of tax debt, no payment of tax debt, or payment in installments. This helps taxpayers resolve their back taxes without upsetting their financial stability.

Tax Debt Resolution & the IRS

The IRS looks to get the most in tax debt, preferably the full amount in a single payment. In tax debt cases that require tax debt reduction or postponement of the payment of the debt, taxpayers should hire professional help. The assistance of tax lawyers is important in achieving a beneficial, fast and smooth resolution. Complicated tax debt cases require negotiation with the IRS that can only be expertly done by tax lawyers.

Although it is best to avoid getting into tax debt, efforts must be made to resolve it at the earliest possible time to avoid penalties and interest, and the possibility of collection actions by the IRS.