Tax Debt Relief – Your Guide to Resolving Tax Debt With IRS
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As a responsible adult, certain obligations come with the territory, like doing household chores, scheduling medical appointments, and caring for the garbage.
And then there are taxes, which fall into the category of must-dos. Falling behind on your taxes can quickly invite unwanted attention from the IRS, which is as uncomfortable as it sounds.
Being burdened with tax debt is no picnic. But when you find yourself being hounded by the government to pay up, it’s essential to remain calm and composed.
Although it won’t be easy, you can regain your financial footing and get rid of those persistent IRS troubles. This article will discuss various options for tax debt relief and help you determine which one suits your needs best.
What Is Tax Relief?
Within the realm of taxes, the term “tax relief” encompasses various aspects. Generally, tax relief refers to any measure, provision, or incentive that assists taxpayers in legally reducing their tax obligations. This can include well-known benefits like tax credits, deductions, and even stimulus checks or rebates.
The IRS also employs the concept of tax relief when discussing extensions for certain tax deadlines for individuals residing in federally declared disaster areas or those affected by specific events such as hurricanes or floods.
Those impacted by these circumstances may also be eligible to claim deductions for personal property losses not covered by insurance or other reimbursement forms. The IRS maintains a comprehensive list detailing the disaster situations in which it offers such tax relief measures.
5 Common Tax Relief Options – Tax Debt Relief
1. IRS Payment or Installment Plans
If you need additional time to settle your tax bill, it’s worth checking if you meet the criteria for an installment agreement or a payment plan offered by the IRS.
By opting for a payment plan, you can slowly repay your outstanding tax bill and any accumulated interest and fees over an extended period. The IRS provides two types of installment plans: short-term and long-term.
There are several important points to consider when seeking tax relief through an IRS payment plan:
It’s crucial to note that signing up for a payment plan doesn’t exempt you from accruing interest and penalties on late payments. These charges will continue until your balance reaches zero.
If your outstanding balance exceeds $25,000, you must arrange automatic bank account withdrawals to make payments.
Payments made using a debit card, credit card, or digital wallet require an additional processing fee. Debit cards incur charges ranging from approximately $2 to $2.50 per transaction, while credit cards impose fees equivalent to around 2% of each payment made. However, applicants with lower incomes may be eligible for waived setup fees.
2. Offer in Compromise
If you’re looking for a way to reduce your tax burden, there’s an alternative known as an “offer in compromise.” This allows you to settle your outstanding taxes with the IRS for less than the full amount owed.
The IRS states that this option may be available if you cannot pay your tax debt or if doing so would cause financial hardship.
However, it’s important to note that obtaining approval for an offer in compromise from the IRS is challenging compared to setting up a payment plan. The IRS only approves less than half of the requests received. Before considering an offer in compromise, exploring other alternatives is advisable.
To determine eligibility for tax relief through an offer in compromise, the IRS considers factors such as your ability to pay, income and expenses, and asset value.
Here are some key points regarding obtaining tax relief through an offer in compromise:
- A non-refundable fee of $205 applies, with the possibility of a waiver for low-income taxpayers
- An initial payment, also nonrefundable, is required as part of the process
- Eligibility depends on being up-to-date with all tax returns; failure to file may impact qualification
- The IRS retains the right to file or maintain tax liens until your offer is accepted and obligations are met
- Individuals in open bankruptcy proceedings are ineligible for this program
- While not mandatory, engaging a qualified tax professional for paperwork assistance is an option
- Upon application submission, the IRS temporarily halts collection activities
3. “Currently-Not-Collectible” Status
If you cannot pay your taxes and reasonable living expenses, there’s an option to ask the IRS to place your account in what is known as “currently-not-collectible” status.
You will need to make a formal request to initiate this collection delay. The IRS may require you to fill out either a Collection Information Statement or a Collection Information Statement for Wage Earners and Self-Employed Individuals form to verify the current state of your finances. You must provide details about your monthly income and expenses on this form.
Here are some key points worth noting when applying for CNC status:
- The status is temporary, subject to annual income reviews by the IRS to assess any financial improvements
- “Currently not collectible” status doesn’t eliminate your existing tax debt
- The IRS retains the authority to file a tax lien even in this status
4. Penalty Abatement
If you face an IRS penalty for failing to file or pay, even if your record is otherwise clean, there may be a way to request the penalty and associated interest be reversed. This option is known as “first-time penalty abatement.”
To be eligible for this type of relief, certain criteria typically need to be met. These include filing your current return (or requesting an extension), paying your past taxes (or being on a payment plan), and not receiving any IRS penalties in the last three years.
Additionally, the IRS offers penalty relief for situations where reasonable cause can be shown. You may qualify if you could not file on time due to a serious illness, family death, or natural disaster like a fire.
However, evidence and documentation, such as hospital or court records, must be provided to support your claim.
5. Hiring a Tax-Relief Company
Tax relief companies often assist individuals who are facing tax-related difficulties.
While some of these companies can genuinely offer help, especially if you’re unsure about the procedures or require guidance with form completion, it’s essential to exercise caution when considering offers that appear overly appealing.
Be skeptical of promises that guarantee refunds or complete debt elimination, as they may be too good to be true. The Federal Trade Commission advises taxpayers with outstanding tax debt to attempt resolving their situation directly with the IRS before engaging with a tax-relief company.
If you opt for the services of a tax-relief company, remember:
- Most offers in compromise applications submitted to the IRS are declined
- If a tax relief company mishandles or delays your application, you remain responsible for your tax debt and accrued interest and penalties imposed by the IRS
- Upfront fees to the tax relief company, a percentage of your owed taxes, might be required. This fee could surpass any potential savings on your tax bill if the IRS approves your offer in compromise, and it may not be refundable in case of IRS rejection
Some tax relief companies may require payment for services such as assessing your IRS debt, arranging a payment schedule, or determining if you qualify for an offer in compromise. However, these tasks can often be accomplished independently without cost.
- Determine if you owe the IRS and the amount owed by accessing IRS.gov/account, where you can also retrieve up to five years of payment history.
- Obtain your tax records through one of the IRS’s five free tax transcripts. These transcripts offer insights into your tax history, such as line items from returns processed in the last three years and essential details like marital status, payment methods, and adjusted gross income for the current and past 10 years. Note that a tax transcript differs from a copy of your tax return.
- Establish a payment plan with the IRS, following the earlier process.
- Explore the possibility of qualifying for an offer in compromise using the IRS’s online pre-qualifier tool. Remember that the tool serves as an initial step; a formal application is still required to proceed further.
How to Get Rid of Tax Debt?
So, what is your optimal choice for resolving your tax debt (along with all the associated stress)? The solution: Establish a payment arrangement and commit to diligently paying it off. We understand this may not be the quick fix or magical remedy you hope for.
However, when it comes to debt, especially tax debt, avoiding it is simply not an option. Confronting the issue head-on and swiftly settling your outstanding balance is the most reliable way to remove tax debt from your life and prevent future repercussions.
Rest assured that we will only instruct you to pay off the entire amount if you guide you on how to do so. Here’s a step-by-step plan of action designed to help you eliminate your overdue taxes:
Step 1: Work With a Tax Pro
Numerous companies offer assistance with tax debt relief, all promising to assist you in resolving this issue. However, it’s crucial to ensure that when dealing with the IRS, you have a genuine tax professional and not someone who will exploit your situation.
Tax relief can become incredibly complex very quickly, and the amount you owe to the IRS depends significantly on how effectively you file your back taxes and complete relief forms.
Given the high stakes involved, it’s advisable to collaborate with an individual who possesses extensive knowledge in this field and genuinely has your best interests at heart.
Therefore, before proceeding any further, it would be highly beneficial for you to invest some time in finding a trustworthy tax expert you can rely on.
Step 2: File Your Tax Returns
If you have outstanding dues to the Internal Revenue Service (IRS), it’s crucial that you still complete your tax filing. You might think, “But that’s the issue, I can’t afford to pay my taxes.” However, it’s important to understand that filing and paying taxes are separate. Neglecting to file your taxes is considered a severe offense.
Hence, you must file for each year in which you owe taxes, even if you have yet to make any payments in the past five years. This will also provide clarity on the exact amount owed for each year. Otherwise, relying solely on the IRS’ billing may result in overestimating what you truly owe, as expected.
Remember our earlier suggestion of consulting a professional tax advisor? Well, this situation is where their expertise can prove invaluable.
Lastly, pay attention to the fact that it remains mandatory to file your current year’s tax return, regardless of concerns about meeting payment deadlines.
Step 3: Get on a Payment Plan
If you still need to do so, take the initiative to apply for a payment arrangement with the Internal Revenue Service. Suppose you need more certainty about choosing between a brief or extended payment plan. In that case, it ultimately depends on your earnings and how quickly you believe you can eliminate your outstanding balance.
However, collaborate with your tax advisor to determine the most suitable choice for your situation. Even if you opt for monthly installments over a longer period, you can modify your existing plan by increasing the amount paid each month (thus expediting completion).
Step 4: Attack Your Debt
Wait to ease up on the accelerator! Once your payment plan is approved, the real work begins. It’s important to remember that even with a payment plan, interest and fees accumulate daily.
The most effective way to prevent your debt from growing further is to attack it forcefully. Even if you have other debts, IRS debt should be prioritized at the top of your list. Take a proactive step by setting aside as much of your upcoming paycheck as possible to tackle your tax debt head-on.
This is the perfect time to tighten up your budget and focus solely on covering essential expenses: food, utilities, housing, and transportation. Additionally, consider finding a part-time job to provide extra fuel for this endeavor.
Everyone needs to be fully committed and involved in this situation! Continuously make substantial payments towards clearing the debt as quickly as possible until it’s completely gone.
Yes, it may seem intense, but so is tax debt itself. The more determined you are about paying it off promptly, the sooner you can regain control over your life.
Can Tax Relief Companies Help?
Tax debt relief companies serve as intermediaries between individuals and the IRS. Their claims to reduce or eliminate tax bills should be approached cautiously, as they often charge a fee for services that can be done independently.
These companies frequently utilize the same financial hardship programs available to individuals. There are also fraudulent operations disguised as tax relief providers aiming to exploit personal information and finances.
Nevertheless, reliable tax relief companies can assist with tax-related issues.
If one lacks the time, energy, or expertise required to submit an offer in compromise, seeking out a trustworthy organization may prove worthwhile. Below are our top recommendations for reputable tax relief services:
Larson Tax Relief offers comprehensive services to address various business tax needs. These include handling payroll and federal tax matters, resolving conflicts with revenue officers, and addressing worker classification concerns. This makes them an outstanding choice for businesses seeking assistance with their tax debt.
In addition to their expertise in business taxes, Larson Tax Relief also supports personal IRS tax debt relief and corporate tax assistance. They’re even capable of helping clients delay or prevent bank levies.
With its vast array of services, Larson Tax Relief is the ideal partner for businesses and individuals seeking effective solutions to their tax burdens.
Anthem Tax Services assists with IRS tax debt relief and corporate tax preparation. They have a comprehensive range of services to help clients navigate various IRS tax debt relief programs, such as offers in compromise (OIC), innocent spouse relief, and achieving a “currently not collectible” status.
One notable advantage offered by Anthem is its exceptional money-back guarantee. They will refund all fees paid if they cannot secure any form of resolution from the IRS, whether it be reducing payment amounts or forgiving the debt entirely.
It’s important to note that this guarantee doesn’t cover the initial investigation fee, which typically starts at $350, depending on the specifics of each case.
Community Tax provides complimentary consultations and reasonably priced examination fees between $295 and $500. Community Tax relief primarily focuses on resolving IRS tax debt, although it provides some assistance with state taxes.
Like other companies in this industry, Community Tax handles various applications, including installment agreements and offers in compromise. However, they don’t offer innocent spouse relief.
Community Tax caters to customers with tax debt starting at $10,000. The duration for their money-back guarantee varies depending on the state you reside in, ranging from three to ten days. If your issues aren’t resolved satisfactorily, they offer a full refund.
3 Signs of a Tax Relief Scam
To avoid becoming a victim of fraud, it’s crucial to be cautious when considering collaboration with a tax relief organization.
This is because your personal information could be compromised. The Federal Trade Commission (FTC) has identified several warning signs to watch out for. It’s essential to be wary of any company that exhibits these characteristics:
- Provides guarantees of tax liability relief
- Misrepresents the processing time for debt relief applications
- Omits pertinent information from financial statements submitted to the IRS
If you have concerns about a potential debt relief scam, you can report it to the FTC through their online platform or by contacting 1-877-FTC-HELP.
Tax Debt Relief – FAQs
How Can I Get My Tax Debt Forgiven?
The Internal Revenue Service (IRS) provides a solution called an offer in compromise (OIC) for individuals who cannot repay their outstanding taxes fully. If the IRS approves your OIC request, you can settle your tax debt for less than what you currently owe.
However, qualifying for an offer in compromise can be challenging, so it’s wise not to rely solely on this option. The IRS evaluates applicants based on various factors, including their ability to pay, income level, expenses, and the equity they possess in their assets.
For the IRS to accept your OIC request, they must believe that the sum offered represents the maximum amount they can collect from you within a reasonable timeframe.
How Many Years Can You File Back Taxes For?
Every year, it’s necessary to submit your tax returns. Nonetheless, as per the IRS guidelines, the organization typically only reviews tax filings that are six years overdue.
Who Qualifies for Tax Debt Relief?
The eligibility for tax debt relief varies depending on the specific program you choose to apply for. However, certain IRS programs may waive or reduce the setup fees if you have a low income.
When opting for an installment plan with the IRS, whether short-term or long-term, there’s a requirement for your tax debt to be below a certain dollar amount.
- Short-term plans: $100,000 or less
- Long-term plans: $50,000 or less
Get Rid of Tax Debt for Good – Tax Debt Relief
Wow! By this point, you probably understand how burdensome tax debt (and all types of debt) can be. It doesn’t just impact your finances but also affects your mental and emotional well-being.
It’s even more challenging when the financial industry and those around us make it seem like being in debt is the only choice we have. But here’s some great news, there’s an alternative.
Companies like Larson Tax Relief, Anthem Tax Services, and Community Tax Relief are here to assist you if you’re overwhelmed with taxes. These tax relief services can take on the intimidating task of dealing with taxes for you.