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Having trouble paying your taxes? Here are 3 smart options to consider.

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If you owe back taxes to the IRS but can't afford to pay them off, there are a few smart ways to tackle what you owe. Getty Images

Tax season is upon us, so you may be dealing with some extra stress due to the filing requirements, paperwork and potential tax payments. Things can get infinitely more stressful if you find that you owe money to the IRS, whether it's a bill for this year's tax filings or an IRS tax debt that's lingering from years prior.

After all, the IRS can be quick to act when you owe them money. And, if you can't afford to pay your taxes, whether it's due to a job loss, miscalculation or unexpected expenses, the situation can quickly spiral into a nightmare of penalties, interest charges and aggressive collection tactics. 

The good news is, though, that there are ways to get back on track and resolve your tax debt responsibly — even if you don't have the cash on hand to pay the bill. Below, we'll break down three smart options to consider.

Find the right tax relief service to help tackle your IRS debt here.

Having trouble paying your taxes? 3 smart options to consider

If you're unable to pay off what you owe to the IRS, the following options may be worth considering: 

Use a tax relief service

If you're overwhelmed by the complexities of dealing with the IRS and navigating the maze of tax laws, you may want to consider enlisting the help of a reputable tax relief service instead. These companies specialize in negotiating with the IRS on behalf of taxpayers, working to find solutions that can reduce or even eliminate your outstanding tax debt.

Tax relief services can guide you through various programs and strategies for resolving your tax debt, such as installment agreements, offer in compromise, penalty abatement and innocent spouse relief. They have experienced tax professionals who understand the intricate rules and regulations, increasing your chances of a favorable outcome.

However, it's crucial to exercise caution when choosing a tax relief service. Some less-than-reputable firms may make unrealistic promises or charge exorbitant fees, leaving you in an even worse financial situation. So, do your research, read reviews and ensure you understand the terms and conditions before engaging their services.

Owe money to the IRS? Explore your tax relief options online today.

Take the DIY route

If you prefer to handle your tax debt on your own or cannot afford the services of a tax relief company, there are several do-it-yourself options you can explore directly with the IRS. These include:

  • An installment agreement: If you can't pay your entire tax bill at once, the IRS may allow you to set up an installment agreement. This arrangement lets you make monthly payments over an extended period, usually up to 72 months. The IRS charges a user fee for setting up an installment agreement, but it's generally more affordable than the penalties and interest that would accrue if you failed to pay.
  • An offer in compromise: For those who truly cannot pay their full tax debt, the IRS offers an offer in compromise program. This allows you to settle your tax liability for less than the full amount owed if you can demonstrate a genuine financial hardship. During this process, the IRS considers your income, expenses and asset equity to determine an appropriate settlement amount.
  • Currently not collectible status: If your financial situation is so dire that you cannot afford to pay anything toward your tax debt, you may qualify for currently not collectible status. This leads the IRS to temporarily suspend collection efforts until your financial circumstances improve, but interest and penalties will continue to accrue during this time.
  • Penalty abatement: In certain cases, the IRS may be willing to waive or reduce penalties if you can demonstrate reasonable cause for your failure to pay or file on time. This could include circumstances beyond your control, such as a natural disaster, serious illness or erroneous advice from an IRS representative.
  • Innocent spouse relief: If you filed a joint tax return with your spouse and they are solely responsible for the tax debt, you may be eligible for innocent spouse relief. This program can relieve you of the responsibility for paying taxes, interest and penalties if you can prove you were unaware of the incorrect filing or unreported income.

It's important to note, though, that while these routes can be navigated alone, seeking at least some professional guidance can be invaluable, especially if your tax situation is complex or involves significant amounts of debt.

File for bankruptcy

In certain cases, filing for bankruptcy may also be a viable solution for resolving overwhelming tax debt. However, this decision should not be taken lightly, as bankruptcy carries significant long-term consequences for your credit and financial future.

In general, two types of bankruptcy can potentially discharge certain tax debts:

  • Chapter 7 Bankruptcy: This form of bankruptcy involves the liquidation of non-exempt assets to pay off creditors, potentially including the IRS. Certain types of tax debt may be eligible for discharge under Chapter 7, such as income tax debts that are more than three years old.
  • Chapter 13 Bankruptcy: With a Chapter 13 filing, you enter into a court-approved repayment plan to pay off your debts, including taxes, over three to five years. Any remaining tax debt may be discharged after completing the repayment plan.

It's important to note, though, that not all tax debts are dischargeable in bankruptcy. Certain types of taxes, such as payroll taxes, fraud penalties and taxes for which a return was never filed, generally cannot be eliminated this way.

Additionally, bankruptcy comes with temporary credit score implications that could make it difficult to obtain loans, credit cards or even housing and employment. In most cases, it should be considered a last resort after exhausting all other options for resolving your tax debt.

The bottom line

Ignoring your tax debt is never a wise choice. The IRS has formidable collection powers, including the ability to garnish wages, seize assets and impose hefty penalties and interest charges. But by taking proactive steps and exploring the available relief options, you can work toward resolving your tax issues and regaining financial stability.

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