8 Credit Card Offers That Could Backfire Later
Credit card companies have their own interests before yours. Read between the lines before accepting an offer.
Tax debt consolidation works a little differently than consolidating credit cards or student loans. We explain how to consolidate multiple years of tax debt into one plan.
If you have several years’ worth of tax debts, a great first question for you to ask is, “can’t I just consolidate these bills into one?” The short answer is yes. But let’s think about the word “consolidate”. You may have the notion that tax debts work like credit cards. That by combining your balances you can reduce how much you pay, in total. Unfortunately, that consolidation benefit doesn’t really apply to tax debt consolidation. At least, not exactly.
In order to sort out what you can and can’t do when it comes to consolidating tax debt, let’s first consider how the IRS bills you. When you combine this information with your best resolution options, your choices become clearer. The good news is, there’s more than one way to handle back taxes. And you should be able to find a resolution that fits your needs.
Every individual tax debt represents a delinquent balance for a specific year. You can find details on the IRS notice of assessment that they send you by mail. Additionally, the debt from each year generates its own penalties and interest. These are extra charges you incur for not paying by the original due date. It can seem daunting, then, to have a tax debt notice in hand, only to receive another one for a different year. Fortunately, the IRS provides a workable solution.
Perhaps the most popular IRS resolution is the installment agreement (IA). This plan enables you to pay your tax debt back in fixed monthly installments, rather than all at once. Depending on the size of your balance, you can stretch out the repayment period up to six years. And while penalties and interest continue to accrue for the life of your debt, you don’t have to pay several different installment agreements at one time. The IRS will include tax debts from several different years into one IA, allowing you the relative comfort of just one monthly tax bill.
Should you roll multiple years of tax debts into one IA, you still have to proceed with caution. Specifically, you want to be on the lookout for any new tax liabilities; these will jeopardize an existing IRS payment agreement. For instance, if you have an IA and make a mistake on next year’s tax return, and in turn receive a delinquent tax bill, your IRS plan will be invalidated – forcing you to start over. If you suspect that you’re going to owe for a year that has not been included in your IA, contact the IRS or, if applicable, your tax professional.
You may be well-equipped to deal with the IRS directly when resolving your tax issue. However, if you want a second opinion – or a chance to explore all of your options – you may want to contact a licensed tax professional. There may be a better resolution for your situation, which a tax professional will quickly determine (likely in one phone call). Whatever you do, though, it’s definitely a good idea to handle all of your tax debts at once and, if possible, with one simple payment plan.
Article last modified on July 1, 2019. Published by Debt.com, LLC