When it comes to taxes, there are a lot of things that can be confusing. But one thing that shouldn’t be confusing is tax settlement. In the United States, tax settlement is a pretty straightforward process – and in this article, we’ll explain everything you need to know about it!
What is a Tax Settlement?
Regarding taxes, the term “settlement” refers to an agreement between you and the IRS to pay less than what you owe. This can happen for various reasons, but the IRS usually believes you can’t afford to pay the total amount.
There are a few different types of settlements that you can reach with the IRS, but the most common is an offer in compromise (OIC). With an OIC, you agree to pay a lump sum less than your total tax debt. The IRS will only accept your offer if they believe that it’s the most they can expect to collect from you.
If you cannot reach an agreement with the IRS, you may be able to negotiate a payment plan called an installment agreement. With this arrangement, you agree to make monthly payments until your debt is paid off.
The Different Types of Tax Settlements in the USA
There are different types of tax settlement services in the USA. The most common ones are:
- Offer in Compromise: This is when you offer the IRS a lump sum of money that is less than what you owe. The IRS will then agree to forgive the rest of the debt.
- Installment Agreement: This is when you agree to pay back what you owe the IRS over time, in monthly installments.
- Currently Not Collectible Status: This is when the IRS agrees not to collect on your debt for a certain period, usually due to financial hardship.
- Partial Payment Installment Agreement: This is similar to an installment agreement, but you only make partial payments towards your debt. The rest of the debt is forgiven.
- Tax Debt Forgiveness: This is when the IRS agrees to forgive your tax debt completely. This is usually only available in cases of extreme financial hardship or if you can prove that you cannot pay back the debt.
Pros and Cons of Settling Your Taxes
If you’re considering settling your taxes, you should know a few things. First, let’s look at the pros and cons of settling.
- Settling can save you money. If you owe a lot of money in taxes, settling may be cheaper than paying the total amount.
- Settling can help you avoid interest and penalties. When you settle, you pay only the amount you owe, plus any accrued interest and penalties. This can save you money in the long run.
-Settling can help you get rid of your tax debt. Once you settle your taxes, your tax debt is gone. You no longer have to worry about it.
- Settling can be expensive. You will have to pay the amount you owe, plus interest and penalties. This can add up to a lot of money.
- Settling may not get rid of all your tax debt. If you owe a lot of money in taxes, only a portion of your debt may be forgiven through settlement. You may still owe money after settling.