Performing household chores such as washing dishes, scheduling medical appointments, and disposing of garbage is essential when you reach adulthood. Another unavoidable obligation is paying taxes, which can become burdensome if neglected. The IRS begins pressuring you to settle outstanding tax debts in no time.
Being in debt to the government due to taxes is far from enjoyable. So how do you handle it when faced with relentless demands for payment? The first step is to take a deep breath and remain calm.
Although it may not be easy, there are ways for you to regain financial stability and alleviate the pressure imposed by the IRS. Our discussion will focus on various options for tax debt relief so that you can determine which one suits your needs best.
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What Is Tax Relief?
The term "tax relief" encompasses various facets of taxation. Any action or benefit that assists taxpayers in legally reducing their tax obligations can be classified as tax relief in terms of policy. This encompasses well-known benefits like tax credits, deductions, and even stimulus checks or rebates.
The IRS often employs tax relief to refer to specific extensions granted for taxpayers residing in areas officially declared as disaster zones or those affected by certain events such as hurricanes or floods.
Taxpayers impacted by these situations may also deduct losses incurred on personal property not covered by insurance or other reimbursements. The IRS keeps an updated list of disaster scenarios for which it provides tax relief measures.
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5 Common Tax Debt Relief Options
1. IRS Payment or Installment Plans
If you're finding it challenging to settle your tax bill on time, consider checking if you meet the criteria for an IRS payment plan or installment agreement. With a payment plan, you can gradually repay your outstanding tax bill (including additional interest and fees) over a specified duration. The IRS provides two options for installment plans: short-term and long-term arrangements.
Here are a few additional details to remember when seeking tax relief through an IRS payment plan:
Opting for a payment plan doesn’t exempt you from accruing interest and penalties on late payments. These charges will continue to accumulate until your balance reaches zero. If your outstanding amount exceeds $25,000, you must pay via automatic bank account withdrawal.
If you choose to make your payments using a debit card, credit card, or digital wallet, an additional processing fee will be involved. The fee for debit cards typically ranges from approximately $2 to $2.50 per payment, while credit cards incur a charge of around 2% of the total payment amount. Individuals with lower incomes may qualify for waived setup fees.
2. Offer in Compromise
One alternative for tax relief is accessible through what is called an "offer in compromise." This allows individuals to resolve their outstanding taxes with the IRS for less than what they owe. As stated by the IRS, this may be a viable option if it’s simply impossible to pay off the tax debt or if doing so would result in significant financial hardship.
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Obtaining approval from the IRS for an offer in compromise is considerably more challenging than securing a payment plan. The IRS only grants acceptance to fewer than fifty percent of these requests. It’s advisable to explore other avenues before considering an offer in compromise.
To determine eligibility for tax relief through an offer in compromise, several factors are considered by the IRS. These include one's ability to make payments, income and expenses, and total assets.
If you're looking to obtain tax relief through an offer in compromise, there are some crucial details that you should be aware of.
- A $205 nonrefundable fee applies (waiver possible for low-income individuals)
- Current tax return compliance is necessary for eligibility
- Ineligibility during an open bankruptcy proceeding
- While not mandatory, you can engage a qualified tax professional for help
- Applying results in the suspension of IRS collection actions
- An initial nonrefundable payment is required
- Tax liens can be filed or retained until offer acceptance and fulfillment
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3. “Currently-Not-Collectible,” Status
If you cannot afford your taxes and living expenses, you can request the IRS to place your account into a "currently-not-collectible." This means that collection activities will be temporarily suspended.
Submit a formal request for the delay in collection. 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. This verifies your financial situation and determines if you qualify for the currently-not-collectible status. On this form, provide accurate information about your monthly income and expenses.
Here are some key points to consider when applying for CNC status:
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- It's temporary; the IRS reviews your income annually for improvements
- "Currently Not Collectible" status doesn't erase your tax debt
- The IRS retains the option to file a tax lien against you
4. Penalty Abatement
If you find yourself when you have a clean record but are hit with an IRS penalty for failing to file or pay, there’s a possibility of requesting a reversal of the penalty and associated interest through "first-time penalty abatement."
To be eligible for this relief, specific criteria must typically be met. This includes having filed your current return (or at least requested an extension), having paid your previous taxes (or currently being on a payment plan to settle them), and not having incurred any IRS penalties within the past three years.
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The IRS provides penalty relief for reasonable cause, which can be helpful if you cannot file on time due to specific circumstances such as serious illness, family death, or natural disasters like fires.
To qualify for this type of relief, providing evidence and documentation that substantiates the event will be necessary. This could include hospital records or court documents related to the circumstance.
5. Hiring a Tax-Relief Company
Tax relief companies often assist individuals facing tax-related difficulties. While some companies can genuinely provide guidance and support, particularly for those who find the process confusing or need help with form filling, it’s crucial to exercise caution when encountering offers that appear too good to be true.
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For instance, beware of promises that guarantee refunds or complete debt elimination. The Federal Trade Commission advises taxpayers burdened with tax debt to attempt direct resolution with the IRS initially.
If you opt to engage a tax-relief company's services, keep in mind:
- Most offers in compromise applications are declined by the IRS
- Tax relief company delays or losses can leave you responsible for your tax debt, including interest and penalties
- Upfront fees to tax relief companies, which may be a percentage of your tax debt, could exceed potential savings if the IRS accepts your offer (non-refundable if rejected)
There are tax relief companies that may require payment in order to assess your IRS debt, establish a payment arrangement, or evaluate your eligibility for an offer in compromise. However, these tasks can often be accomplished by yourself with no cost involved:
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- Check your IRS balance and payment history for up to five years at IRS.gov
- Obtain various types of free tax transcripts, such as line items from tax returns processed in the last three years and basic data for up to the past 10 years
- Establish an IRS payment plan, as mentioned earlier
- Determine eligibility for an offer in compromise using the IRS's online pre-qualifier tool, but remember to complete a formal application if you qualify
How to Get Rid of Tax Debt?
So, what is your optimal choice for eliminating your tax liability (and all the accompanying stress)? Enroll in a payment arrangement and fully commit to repaying it. We understand this may not be the quick fix or magical remedy you hoped for.
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However, tax liability takes the lead when it comes to debt that you absolutely cannot avoid. Confronting it head-on and swiftly paying off the amount owed is the most effective approach to permanently rid yourself of tax debt with no future repercussions.
Rest assured, we won't simply urge you to pay off everything without explaining how to do so. Here’s a step-by-step plan tailored for getting rid of your overdue taxes:
Step 1: Work With a Tax Pro
There are a lot of tax debt relief companies out there that promise to help you clean up the mess. But any time you’re dealing with the IRS, you want to be sure you’ve got a real tax professional in your corner, not someone who will take advantage of your situation.
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Tax relief can get complicated fast, and how much you hand over to the IRS will depend a lot on how well you file your back taxes and fill out relief forms. When that much is on the line, it’s best to work with someone who knows their stuff and has your best interest in mind. So, before you do anything else, do yourself a huge favor and find a trustworthy tax pro.
Step 2: File Your Tax Returns
If you have an outstanding tax debt with the IRS, fulfill your obligation of filing your taxes. You may be concerned about being unable to pay your taxes, but it's crucial to understand that filing and paying are separate matters. Failing to file taxes is considered a serious offense.
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You must file for every year in which you owe taxes, even if you haven't paid them for several years. This will accurately assess the amount owed for each specific year. Relying solely on the IRS's bill may result in overestimating your actual tax liability, as they tend to err on the side of caution. Seeking help from a tax professional can benefit you in this situation.
Don’t overlook the fact that filing your current year's taxes remains mandatory (even if concerns about insufficient funds by the deadline arise).
Step 3: Get on a Payment Plan
If you haven't applied yet, go ahead and submit an application for a payment plan with the IRS. If you're unsure about choosing between a short-term or long-term plan, your decision should be based on your income and how quickly you believe you can eliminate your debt.
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Consult with your tax advisor to determine the best option for you. Even if you opt for long-term monthly payments. There’s always room to adjust your current plan and pay more each month in order to expedite the process of clearing your debt.
Step 4: Attack Your Debt
Keep your foot on the pedal! Once you receive approval for a payment plan, that's when the real work starts. Remember, even with a payment plan in place, interest and fees continue to accrue every day! The most effective way to prevent your debt from growing is to attack it with full force. Even if you have other debts, prioritize IRS debt relief at the top of your list.
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Allocate as much of your upcoming paycheck as possible towards paying off your tax debt. Now is the time to significantly reduce your expenses and focus solely on covering the essential basics: food, utilities, housing, and transportation.
Consider finding a part-time job to further accelerate progress. This requires everyone's contribution. It's an all-hands-on-deck situation! Continue making substantial payments as quickly as possible until it’s completely paid off. Yes, it may be intense but so is tax debt. The more determined you are to eliminate it, the sooner you can regain control of your life.
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Can Tax Relief Companies Help?
Tax debt relief companies serve as intermediaries between individuals and the IRS. While they may promise to reduce or eliminate tax bills, it’s essential to exercise caution. These companies typically charge a fee for a service that individuals can handle independently.
Tax debt relief companies often use the same IRS financial hardship programs that individuals can apply for independently. Many scammers pretend to offer tax relief to deceive individuals and obtain their money and personal information.
There are reputable tax relief companies that can assist with resolving tax issues. For those who lack the time or expertise required to submit an offer in compromise themselves, finding a trustworthy organization may be worth considering. Below are our top recommendations for reliable tax relief services:
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Larson Tax Relief offers a comprehensive selection of services for businesses facing tax issues. These include payroll and federal tax problems, conflicts with revenue officers, and concerns related to worker classification. With its business and corporate tax debt relief expertise, Larson Tax Relief is the ideal choice.
The team at Larson Tax Relief is skilled in providing various forms of tax debt relief services. Whether it's personal IRS tax debt relief or help with corporate taxes, they have you covered. They can also help delay or prevent bank levies, ensuring financial stability.
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Anthem Tax Services specializes in assisting with IRS tax debt relief and corporate tax preparation. The company is dedicated to helping individuals apply for various IRS tax debt relief programs, such as offers in compromise (OIC), innocent spouse relief, and achieving a "currently not collectible" status.
What sets Anthem apart from its competitors is its exceptional money-back guarantee. They’ll refund your entire payment if they cannot secure any form of resolution from the IRS, whether it be a reduction in payment amounts or complete debt forgiveness.
However, this guarantee doesn’t cover the initial investigation fee. The cost of this fee varies depending on the specific details of your case, starting at around $350.
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With Anthem Tax Services by your side, you can trust that you receive professional help tailored to your unique situation. They strive to provide top-notch service while ensuring that all necessary steps are taken toward resolving your tax-related concerns effectively and efficiently.
Community Tax provides complimentary consultations and cost-effective inquiry charges that span from $295 to $500.
Community Tax relief concentrates primarily on resolving IRS tax debt, but it extends limited aid for state taxes. Like other firms, Community Tax processes applications for a wide range of services, including installment agreements and offers in compromise. However, they don’t handle innocent spouse relief cases.
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The company caters to customers with tax debt starting as low as $10,000. The duration of their money-back guarantee varies by state and can be anywhere between three to ten days. If your concerns aren’t resolved, Community Tax ensures a full refund is provided.
3 Signs of a Tax Relief Scam
Protecting your personal data is crucial, especially when dealing with tax relief companies. It's essential to be vigilant and watch out for signs of potential scams. The Federal Trade Commission (FTC) provides valuable insight into identifying red flags that may indicate fraudulent activity.
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Stay cautious if a company exhibits any of these warning signals:
- Promises tax relief guarantees
- Misrepresents processing time for debt relief applications
- Omits pertinent details from IRS financial statements
If you have concerns about a potential tax debt relief scam, report it to the FTC either through their online platform or by dialing 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 fully repay their outstanding taxes. If the IRS accepts your OIC application, you can settle your tax debt for less than the total amount owed.
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Note that qualifying for an offer in compromise can be challenging. It’s advisable not to rely solely on this option as a means of resolving your tax issues. The IRS evaluates applicants based on various factors, including their ability to pay, income, expenses, and asset equity.
Your OIC request will only be accepted by the IRS if they deem that the proposed amount is the maximum they can collect from you within a reasonable timeframe.
How Many Years Can You File Back Taxes For?
Every year, it’s mandatory for individuals to submit their tax returns. However, per the IRS guidelines, they rarely review tax filings that are over six years overdue.
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Who Qualifies for Tax Debt Relief?
Whether you meet the requirements for tax debt relief is contingent upon the specific program you seek to apply for. However, the IRS's various options may eliminate or reduce setup fees if your income falls below a certain threshold.
If you choose to pursue an installment plan with the IRS, whether short-term or long-term, to settle your outstanding tax debt, your debt mustn’t exceed a specified dollar amount.
- Short-term plans: $100,000 or less
- Long-term plans: $50,000 or less
Get Rid of Tax Debt for Good
Wow, tax debt (and debt in general) can take a toll on you, financially and emotionally. It's frustrating how society has made it seem like being in debt is the only choice. But fear not. There’s another solution.
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You can seek help from reputable tax relief services such as Larson Tax Relief, Anthem Tax Services, and Community Tax Relief. These professionals are here to ease the burden of your tax obligations for you.
Disclaimer: The above is a sponsored post, the views expressed are those of the sponsor/author and do not represent the stand and views of Outlook Editorial.
