If there are errors on your federal income taxes, you may have adopted the "wait it out" approach. It's true that the Internal Revenue Service has a maximum of 10 years to collect on your back taxes, so if you're patient (and fearless) enough, you might be able to outlast the agency's power to collect. In the meantime, though, the IRS may have taken drastic measures that could negatively affect your financial livelihood for years. Instead, why not learn about a few ways to pay off your back income taxes?
Why You Need to Settle Your Back Taxes Now
When it comes to back income taxes, time is literally money. The longer you wait to pay off your tax debt, the more money you will owe. For every day that your taxes are overdue, the IRS assesses compound interest charges on the amount due. In addition, you incur a late payment penalty that increases each month. If you haven't even filed your tax return, you'll also owe a failure-to-file penalty on top of that.
discuss interest fees, penalties
When you put off paying your back income taxes, you're also risking your overall financial standing. The IRS has the legal power to collect taxes in any way necessary, including seizing your assets and selling them to clear your debt. No matter how you look at it, it's definitely in your best interest to settle back tax debt.
How to Pay Off Back Taxes
So, how can you pay off your taxes? One way is to request an installment agreement using IRS Form 9465. This agreement is simple to begin and doesn't cost you a dime to set up. Simply complete the form and choose which day of the month you'd like to submit your payment. You can also decide how much to pay each month, as long as you'l be able to pay off your total balance within three years.
Depending on the size of your tax debt, you might find it best to pay off your back taxes by taking out a personal loan and making a lump sum payment for the full balance. If you can find a competitive interest rate, a bank loan for the total may be cheaper than using the IRS installment plan and continuing to accrue compound interest.
These are just a couple of ways to pay off your back income taxes, but there are other options for you to consider. Speak with a qualified tax professional who can advise you about which method for settling back taxes is best for you.
