Owing the IRS is probably one of the scariest situations for an individual to be in. Fortunately, they offer ways to reduce tax debt. If you seek tax relief help and you don’t avoid attempts by the Internal Revenue Service to communicate with you regarding your debt, you could be in for a (good!) surprise —and substantial savings on your tax debt.
Not all tax relief programs help reduce tax debt in the same way. Let’s look at the good and bad of tax debt relief so you can work effectively with a tax relief company to resolve your back taxes, perhaps even reducing your debt so you can start to pay it off.
1. The IRS Fresh Start Program
Since 2010, the IRS has made it easier to negotiate a tax payment plan that also helps reduce tax debt. The IRS Fresh Start program is a huge blessing to taxpayers in over their heads. The only question lies in deciding which negotiating path to take: an “Offer-in-Compromise,” a Partial Pay Installment Agreement, or Penalty Abatement.
2. “Offer-in-Compromise” from the IRS
An offer-in-compromise could reduce tax debt to less than 50 percent of the original amount, especially if you can show financial hardship such as medical bills or loss of employment. If the IRS believes there’s an error and you don’t actually owe that much, they may also reduce your tax debt.
The downside? The IRS only accepts about 40 percent of these offers, and you must show compelling proof you can’t pay. Also, you must pay the balance in a lump sum or in two years of fixed monthly payments.
3. Partial Pay Installment Agreement
A partial pay installment agreement might be the best-kept secret in tax relief. Under this plan, you can reduce tax debt by up to 50 percent, penalties will be reduced, and you’ll have three to six years to pay what you owe.
But if your tax liability is more than $50,000 you won’t qualify for this program—unless you can pay any balance over $50,000 immediately.
There are other terms and conditions related to this option:
4. Installment Agreement
If you believe you can pay your taxes—just not right away or all at one time—you can file for an installment agreement. Under this payment plan, you make monthly payments until your debt is paid off, without additional penalties or interest.
Some things to keep in mind:
5. Ask about penalty abatement
Probably the least desirable of negotiation options, penalty relief may help if:
Since penalties can make up a substantial part of tax debt, penalty abatement can provide some relief for those facing a temporary economic setback.
6. Hire a tax relief firm to help
These programs were put in place to help taxpayers through challenging economic times. But it’s not easy to negotiate with the IRS on your own. The IRS accepts about 90 percent of offers-in-compromise given by a tax relief firm so it pays to get a professional on your side. Most of these tax relief companies work day in day out with the IRS and your benefit from their inside knowledge as well and existing relationships they have.
Facing tax debt can be frightening. But you can alleviate your fears and reduce your debt through a reputable tax relief firm. The Solvable Review section can help you find reputable tax debt relief firms and tax attorneys, and help you determine which company would be best to help you resolve your current tax situation.