Owing money to the IRS can be a daunting experience. Especially, when the tax debt keeps piling up year after year. As the interest and penalties accumulate, it can become increasingly challenging to manage your finances and stay on top of your tax obligations. Thankfully, there is a solution that can help – tax debt consolidation.

What is Tax Debt Consolidation?

Tax consolidation simply put is the process of combining two or more years of tax debt into a single payment. Generally, most people combine multiple years of unpaid taxes by applying for an installment agreement (IA). This is also known as a payment plan. An IA allows you to pay off your total tax debt over several months or several years.

Installment Agreements & Tax Consolidation

You’re probably familiar with credit card debt consolidation where multiple balances are combined into a single payment. Tax debt consolidation can also result in a singular monthly payment under an installment agreement. But, that’s where the similarities end.  

Tax debt is quite different from other types of debt. With credit card or loan balances, you may be able to roll several into a new agreement that has a lower interest rate. This effectively reduces your overall total payment. Tax debt, however, is treated as individual balances by a specific year. Each balance generates its own penalties and interest fees. When combined through an IA, these penalties and interest will continue to accrue until the debt is paid in full.

There’s also another big difference. If you acquire additional tax debt after setting up an IA with the IRS, you will be in default. This means you must change your existing agreement and will likely be assessed a reinstatement fee. With credit card or loan consolidation, you don’t have to worry about new debt impacting your agreement.

Are There Other Options for Consolidating Tax Debt?

If paying off your tax debt under an IRS installment agreement doesn’t work for you, there are a few other options for consolidating your tax debt.

Use a Credit Card

If you have good credit, you may be able to find a credit card offer for 0% APR for an introductory period. Depending on the terms, this could give you up to two years to pay off your debt. This not only saves you money on interest, but also additional penalty fees. Just make sure you can pay off the balance before the offer expires. If you don’t, you’ll get hit with high-interest charges.

Take Out a Personal Loan

Another way to consolidate several years of tax debt is to take out an unsecured personal loan. Be sure the interest fees over the life of the loan are less than what you would have paid under an installment agreement. If you have fair or poor credit, you may have a difficult time getting approved for a rate that makes sense.

Consider Tax Settlement

If you are experiencing financial hardship and don’t expect your situation to improve, tax settlement could be another option. Also known as an Offer in Compromise, this tax relief option allows you to settle your total tax debt for less than you owe. The process is fairly complex and lengthy, so it may be best to consult with a tax professional if you want to consolidate your tax debt this way.

See If You Qualify For a Tax Hardship

In cases of extreme financial hardship, the IRS may agree to place you in a Currently Not Collectible status. Although this doesn’t reduce your debt or tax obligations, it can give you a reprieve from payments for several months or even years. And if the statute of limitations runs out on your tax debt, the amount will eventually be forgiven.

Under certain circumstances, some types of tax debt may also be eliminated through bankruptcy. Before taking this route, however, be sure to consult with a tax lawyer to ensure your tax debt is eligible for relief.

Tips For Dealing With Multiple Years of Tax Debt

If you find yourself owing multiple years of taxes, managing your debt could become increasingly complex. Here are some tips to help you navigate this situation:

• Communicate With The IRS. Do not ignore letters and notices. Maintain open communication with the IRS and be transparent about your financial situation. They may be willing to work with you on a payment plan or offer relief options if you demonstrate a genuine effort to address your tax liabilities.
• Explore Tax Relief Options. Research all available tax relief programs and consolidation options to determine which may be best suited to your needs. Be sure to consider any fees associated with transferring your debt to a personal loan or credit card, as well as your ability to make your monthly payments.
• Develop a Long-Term Plan. It’s also important to have a plan for future taxes to ensure you don’t jeopardize any IRS agreements or add to your debt. Work with a financial advisor or a tax professional to develop a comprehensive plan that addresses your current tax liabilities while also putting measures in place to avoid future tax issues.
• Seek Professional Help. Dealing with multiple years of tax debt can be overwhelming. Consider seeking the assistance of a tax professional or a tax debt resolution company to help you navigate the process and explore your options. At Tax Defense Network, we offer a free consultation without any obligation to purchase our services. To speak with one of our experienced tax consultants, call 855-476-6920.

By embracing tax debt consolidation and seeking professional guidance when needed, you can say goodbye to the stress of managing multiple tax liabilities and pave the way for a brighter financial future.