In my previous article, I wrote about the 5 changes to IRS regulations that make it easier for you to repay your back taxes. Today, I’ll share 4 steps you can take to pay off your back taxes.
1. Make sure the amount you owe is correct
It doesn’t hurt to double check the amount of taxes you owe. Even the IRS makes mistakes. You may have received a tax bill calculated in error. The error may be on your part or the IRS’. So the first thing you are going to want to do is check to see if you made an error in your tax form. A deduction you left out, a checkbox left unchecked or an amount added twice could significantly increase your tax bill. If you find an error you can submit an amended form with the errors corrected.
If you cannot find any error, contact a lawyer to discuss the matter or call up the IRS and enquire about it. But remember it is often very difficult to get some clear answers or talk to the right person in the IRS.
2. Minimize your penalties and interests
Owing back taxes is bad enough but if you have to pay penalties and interests on the back taxes, it’s even worse. In order to minimize your penalties and interests, you should either ask for an abatement of penalties and interests by writing in or pay up your debts as quickly as possible. The IRS does allow abatement of penalties and interests if you write to them explaining why you have a backlog in your taxes.
Also, if you underpaid your taxes this year, but you owed significantly less last year, you generally will not be penalized for underpayment of tax if you paid at least as much as you owed last year, and you pay by the due date this year.
3. Pay by installment
This is the most common way to clear back taxes that may amount to a significant amount. You will have to file Form 9465, Installment Agreement Request, to set up installment payments with the IRS. If you request to pay by installments, the IRS will approve it if you owe $25,000 or less, you can show that you cannot pay the amount you owe now or you can pay off the tax in three years or less. But the condition is that you and your spouse must not have had an installment agreement over the last 5 years.
4. Make an offer in compromise
An offer in compromise is an offer to pay the IRS less than what you owe in back taxes up to your entire net worth as full settlement. The offer in compromise is not open to anyone, only those who genuinely cannot afford to pay their taxes. This step should only be taken as a last resort.