Do you need to settle tax debt with the IRS? If so, you need to know which tax settlement method is best. With so many options to choose from, it is important to know the ins and outs of each one. This is the only way to ensure that you are making the right decision, and doing what is best from both a personal and financial perspective.

Here are several common tax settlement methods and why you should think about using them:

1.Paying in full

This method is common for many reasons. To start, you get your debt out of the way quickly and without a lot of paperwork and wasted time. If you know how much money you owe, and you have that sum available in cash, you can pay your debt in one lump sum. You may even want to think about paying in this manner if you can secure a bank loan at a very low interest rate but in no way should you pay with a credit card as interest rates are typically much higher than bank loans or IRS payment plan rates. Even though it can be difficult to part with such a large sum of money, it makes sense for many reasons if you are in position to do so.

2.IRS Installment Agreements

Those who cannot pay in full, no matter the reason, may want to consider an Installment Agreement (IA), also known as an IRS payment plan. This tax settlement method relies on you, the taxpayer, sending money or having it deducted from your bank account each month to the IRS until your debt is paid off. If you are going to opt for an Installment Agreement make sure you are comfortable with the monthly payment that you suggest. If you cannot afford to make your monthly payment, and miss just one, the IRS is going to cancel your plan and further penalties and interest are typically experienced.

3.Offer in Compromise

If you are in a bad position you may qualify for an Offer In Compromise (OIC) which is a form of settling for less. Before we go any further, it is important to note that only 10 to 15 percent of these offers are accepted so it is highly recommended that you consult with a tax attorney, CPA, former IRS agent, or Enrolled Agent. The IRS does not like accepting offers because it means they are receiving less than the total amount due. You will only quality for an OIC if you can prove: doubt as to liability, doubt as to collectibility, or effective tax administration.

4.Penalty abatement

This is a bit different than the three tax settlement methods outlined above, but very important nonetheless. Penalty abatement allows you to eliminate some or all of the penalties owed. You will still owe the IRS the original amount of the debt, but at the very least you can have the penalties wiped out. This is one of the simplest ways to settle tax debt for less than the base amount.

Now that you know have an overview of four common IRS tax settlement methods you should have a clearer understanding as to which one may be best for you. With most State or IRS tax problems, working with a tax professional is always in your best interests because typically they will not only advise you on which settlement method is best for you, but they can help you with the process of requesting it - in essence shortening your time to a resolution and preventing further tax penalties and interest.