One of the most common forms of debt is from taxes. Most of the traditional methods of debt relief do not work with tax debt. Additionally, the IRS imposes strict penalties if you do not make your payments on time.
This makes it much easier to fall back into debt before you come close to paying off your taxes. Every month you do not pay your tax debt, you are charged a 0.5 percent late fee.
This penalty increases by 0.5 percent every additional month you miss your payments, up to a maximum of 25 percent. This late fee is applied on top of interest. There are also additional penalties you may be forced to pay depending on how much you owe and when you made your last payment.
Unlike other sources of debt, you are initially required to pay off your tax debt all at once.
The first step of tax debt relief is negotiating with the government to create a payment plan.
Payment plans are only available if you can reasonably prove you are unable to pay off the entirety of your debt. Fortunately, setting up a payment plan with the IRS is not difficult, and in nearly all cases, payment plans are accepted.
An IRS payment plan works like any other debt plan. Every month, you are required to make a minimum payment. You accrue interest until you have paid off the entirety of your tax debt.
You can attempt to negotiate with the IRS yourself, or you can hire a tax debt relief firm to assist you. This service often costs several hundred dollars. If you only owe a small amount, it may be better to represent yourself, but in more complex cases, consider working with a tax relief company.