Introduction
Tax debt are taxes that are incurred during a certain tax period that are payable to a certain type of government jurisdiction. Depending on the laws of a land, there are different strategies for settling tax debts. These strategies cater for different financial situations that the tax payers face. A tax payers financial situation determines the tax debt settlement method that they should apply. For most employees, paying tax debts is never a daunting task since the employers withhold the taxes and forward them to the right tax authorities. However, managing and settling tax debts is usually a difficult task for some business owner.
Methods of settling tax debt
Settling the tax amount in full
This is the best and easiest way to settle tax debts. The tax payer pays off the debt in one complete installment and clears with taxing authorities. If the sum is too much for the tax payer to raise, borrowing from family members and friends or selling some of the assets that they do not require could a good approach towards settling the tax debts.
Request for payment extension
If the tax payer does not have enough money to settle the debt within the required time frame, they can always ask for an extension. In most cases, such extension last for about 45 days. The extension may reduce the amount of penalties that are incurred due to delayed payment of the taxes. Strike an installment agreement with the taxing authorities
An installment agreement allows a tax payer to pay off the taxes over a certain period of time. This is effected through monthly installments that the tax payer pays to the taxing authorities.
Strike a partial payment installment agreement
This is applicable if the tax payer does not qualify for the monthly installment agreement. The partial payment method allows the tax payer to pay smaller monthly installments. Nonetheless, the taxing body performs reviews after every two years to determine whether the tax payments can be raised to the full amount that is stated in the agreement.
Offer in compromise
This tax debt payment plan allows a tax payer to make a reasonable offer to the taxing body to pay an amount less than the required amount and call it even. For this to happen, the tax payer has to convince the taxing authority that they would not collect anything more than the amount he/she is offering if they were to take legal action.
Declaration of currently uncollectible
If the tax debt collecting body declares a tax payer uncollectible, they stop all the taxing collecting activities against him/her. However, this situation is reviewed after a couple of years to determine whether the tax payer’s financial situation has improved. If a tax payer is declared uncollectible with the statute of limitations, they stop being liable to the tax debt owned after ten years from the first day of assessment.
Conclusion
When settling high debts, it is always advisable to consult a tax professional who should advise on the right method for settling tax debt to choose. Nevertheless, the best way to avoid such expensive and stressing situations is by paying the tax debts while they are still minimal.