Tax Debt Resolution: Paying Less through Smart Planning

Last updated on June 26, 2023

Many taxpayers are not eligible to qualify for tax debt reduction plans such as Offer in Compromise or Partial Payment Installment Agreement. Reduction in tax debt can only be achieved if the applicant taxpayer does not have the financial capability to pay the full tax debt. However, even taxpayers that have the financial capability to pay their entire debt amount can pay less in tax debt through smart planning.

Tax Debt Resolution: Determine How Much to Pay in Initial Installments

If you are considering paying your tax debt in installments using an Installment Agreement, you should pay the most you can in the first installments. Paying as much as you can at the start will considerably bring down your total tax debt amount.

It is important to bring down your total tax debt amount because the IRS charges penalty and interest each month on the percentage of total tax debt amount. Therefore, if you pay more initially, you will be paying less in penalties and interest.

Early Resolution of Tax Debt

A taxpayer in tax debt must always make efforts to seek an early resolution. To encourage taxpayers to resolve their back taxes early, the IRS charges penalty and interest every month until the entire tax debt is paid. The penalty begins with 0.5 percent and can reach up to 25 percent.

The longer you take to pay your tax debt, the more you pay to the IRS. Delay in the payment of tax debt can put taxpayers at the risk of aggressive collection actions such as lien and levy. Therefore, postponing payment provides taxpayers with no benefits, but puts them in danger of complicating their tax case and making resolution difficult.

Choosing a Tax Debt Payment Plan for Resolution

As soon as taxpayers know that they are in tax debt, they must first decide if they want to use outside help or help themselves to resolve their case. If using help from a tax service or a tax professional, taxpayers must focus on choosing a legitimate and competent service. On the other hand, if seeking resolution themselves, taxpayers should explore the various tax debt payment plans of the IRS to choose the most appropriate plan.

In cases of large tax debt amounts, it is preferable to use professional tax help. There are many IRS programs such as penalty abatement, innocent spouse, etc. that help achieve a beneficial resolution. Depending upon the particulars of a tax case, a tax professional will choose the IRS plan that offers the most benefits to their client.

When researching a tax service, taxpayers may use our ratings and reviews of some of the top tax services in the industry.