By Evan Vitale
Let’s continue our series on how to get out of debt by focusing on a major stress point for many people and that is tax debt.
Depending on your situation, you might be past due on paying your federal taxes to the Internal Revenue Service (IRS); state taxes or county and local taxes. In all cases, ignoring tax reminders and past due notices, won’t make the matter go away. The longer you wait to solve the problem, the worse it will be, especially with mounting interest and penalties.
The best thing to do is to pay off – as soon as possible – any past due taxes you owe. Of course, that is easier said than done, especially if you are in a financial crunch. If that’s the case, you should contact the IRS (and any other agency you owe); explain your financial situation and offer to make payments. In most cases, all agencies will be willing to accept a payment plan. However, you should be aware that part of the payment terms is that you must remain current on payments and file and pay all future tax liabilities on time. If you are self-employed, you should be making quarterly payments on time.
In the case of federal taxes, the IRS has information on payment plans and installment agreements. You can read about them here:
https://www.irs.gov/individuals/payment-plans-installment-agreements
According to the IRS, “if you’re financially unable to pay your tax debt immediately, you can make monthly payments through an installment agreement. As long as you pay your tax debt in full, you can reduce or eliminate your payment of penalties or interest, and avoid the fee associated with setting up the agreement.”
Remember, always file your tax returns on time – even if you can’t pay the balance due in full. All tax returns must be filed in order to apply for any payment agreement.
In our next blog, we’ll review how to pay off credit card debt.
