Irs Tax Debt Relief :When you owe taxes to the government, you can’t escape easily. The government has many ways to get its money from you.
If you don’t pay your taxes on time, you will face serious consequences. You will have to pay extra fees and interest, and the IRS can take your property, your money or your income.
The IRS doesn’t want to ruin your life or make you pay what you can’t afford. That’s why they offer various payment plans for people who are in trouble.
You should act quickly and apply for one of these options or get professional help as soon as possible. Otherwise, you will end up owing more and more to the government.
This is one of the worst kinds of debt you can have, and you should avoid it at all costs.
Tax-Debt Relief: Who Needs It?
You should look into your tax-debt relief options as soon as possible if you have any of these problems:
- You owe taxes and can’t pay them.
- The IRS has contacted you about your debt.
- The IRS has assigned a private debt collector to get your debt.You haven’t filed your tax return for one or more years.
- Your debt is “seriously delinquent” ($52,000 or more) and the IRS has told the State Department to take away your passport.
What Can a Tax Settlement Company Do?
Tax settlement companies say they can help you with IRS debt. But, it’s very hard to find a reliable firm.
Taxpayers can usually get the same or better deal by working directly with the IRS to solve their tax problems,” IRS Commissioner Chuck Rettig said.
However, there are some professionals who can help you find your options, such as one of the IRS’s own Taxpayer Advocates, or a tax lawyer or a certified credit counselor. Here are the signs that a professional is honest:
- Has current professional certifications, licenses, or works for a certified company.
- Tries to understand why you didn’t pay or file
- Explains the IRS’s payment options to you
- Gives you a realistic estimate of what you’ll have to pay
- Doesn’t ask for money up-front or push you to use their services
Tax-Debt Relief: What Are Your Choices?
Tax-debt relief means the ways you can deal with a debt you have to the government.
The IRS has some relief options that usually include a payment plan or a debt settlement—also called an offer-in-compromise. The best choice for a tax debtor varies depending on their situation.
Besides the IRS’s payment options, there are also companies that claim to help you pay your tax debts but be careful. These tax settlement services are often costly, ineffective, and risky. Instead, you can seek professional help to find out your options for repayment.
what is the Utmost Relief to My Debt?
If you have unpaid federal taxes, or if you can’t pay a future bill, the IRS has some options for you. You can find more details about each option at IRS.Gov, but here’s a summary of what they offer:
1.Installment Agreements
Installment agreements with the IRS are like loans: You pay a fixed amount of money every month for a certain time (up to six years) until you pay off your tax bill, with interest and penalties.
Like any loan, IRS installment agreements have interest charges and fees, but they also have some advantages for tax debtors:
- Stop the increase of penalty fees.
- Prevent liens, levies, garnishments, and other collection actions.
- Make your debt payment easier by spreading the cost over several months.
- Offer in Compromise (OIC)
With an offer in compromise (OIC) you agree to pay your tax debt for less than the full amount you owe, and you pay the IRS in one payment or monthly payments.
Taxpayers who can show that paying their full debt—either now or over time—is not possible, may qualify for an OIC.
The IRS will consider many factors before accepting your offer, such as your income, expenses, and asset value. Despite what you may have heard in radio ads for tax settlement, however, the IRS seldom accepts these offers. Also, you’ll have to pay a nonrefundable application fee to the IRS and pay 20% of your total offer amount when you apply.
For debtors, you’re more likely to succeed if the IRS thinks you’ve offered the most amount that the agency can expect to get from you in a certain time.
2.Currently Not Collectible (CNC)
In some cases, delinquent taxpayers who really can’t afford to pay anything toward their debt, can get the bill postponed.
If the IRS decides your tax debt is “Currently Not Collectible,” the agency will stop collection efforts for a while, which can give you some relief. But, there are drawbacks such as:
- The debt adds up interest and late penalties during postponement.
- The IRS may put a lien on your property.
- The IRS will use your future tax refunds to pay your past-due tax bill.
- Innocent Spouse Relief
The IRS understands that spouses or former spouses who are not responsible for the taxes, should not have to pay them.
Couples who file joint returns are both responsible for the taxes they owe, but the IRS can free one partner from taxes, interest, or penalties if the other partner was wrong for underpaying the taxes owed.
To be eligible for Innocent Spouse Relief, you must meet these criteria:
- You filed a joint return with your spouse.
- Your taxes were understated because of unreported income or other mistakes on your return.
- You were unaware of the mistakes
- You live in a community property state
- You ask for relief within two years of getting an IRS notice of an audit, or taxes due, because of the mistake.
Tax-Debt Relief: How the IRS Can Help?
The IRS has a program called Fresh Start Initiative, which started in 2011 and has been expanded since then, to help taxpayers who are in trouble.
With Fresh Start, it’s easier to get approved for payment plans or offer-in-compromise settlements.
Some of the benefits are:
For offers that will be paid in five months or less, the agency only looks at one year of future income (instead of four) to see how much they can collect.
For six to 24 months of payments, the IRS only looks at two years of future income (instead of five).
The IRS now takes into account your credit card payments, bank fees and some other expenses when deciding what you can afford to pay.
Penalty & Interest Abatement of the Irs
It’s rare, but if you can show a special hardship the IRS may offer penalty abatement for your overdue bill. That means the agency may take away some penalties and stop adding new ones.
Under its First Time Penalty Abatement policy, the IRS may give you relief for things like not filing a tax return, paying late, and/or not depositing taxes.
The agency’s requirements are:
- You filed the same type of return, if needed, for the past three tax years before the tax year in which you got a penalty.
- You’ve filed all the returns you need to file now or filed an “extension of time to file.”
- You have paid, or agreed to pay, any tax you owe.
Interest abatement is more restricted than penalty abatement and is hardly ever approved. The penalty for not paying also keeps growing until you pay your taxes in full. That’s why you may want to wait until you pay the whole bill before asking for relief under the First Time Penalty Abatement policy.
Signs of a Tax-Debt Relief Scam
Like any industry — especially one that deals with people who are scared and desperate — there are good companies and there are bad ones.
The first way you can avoid a scam is by not believing the advertising hype: For most tax debtors, getting most of your debt forgiven is a lie.
Next, do your research. Don’t just trust the advertising and find unbiased reviews of legitimate tax relief companies.
Finally, protect yourself with knowledge about when you’re dealing with a crook.
Common signs that a tax debt relief company is trying to cheat you:
- Sending you letters or emails directly.
- Promising results without getting information about your debt.
- Saying they can get rid of or greatly lower penalties and interest.
- Asking for money up-front.
- Not asking why you’re behind with the IRS or talking about your current financial situation.
- Putting off results by asking for the same documents over and over or by other ways.
- Telling you (after taking money) that your debt relief chance has ended, or the IRS turned down your application.
Tax-Debt Relief: Other Ways to Pay Your Bill
You may not be able to find a cheap solution with the IRS. But, you might have other ways to get money to pay your overdue tax bill.
Loans and credit cards can be a way to cover IRS tax debt, but each of the options below has big drawbacks, so think about them carefully:
Home Equity Line of Credit (HELOC): If your credit is good enough to get it, and you have equity in your home, you could apply for a HELOC, which is a line of credit you can use and pay back as many times as you want. Your home will be security for HELOC debt and you’ll pay interest on any amount you owe, plus some fees.
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Credit cards: Credit cards can be one of the most costly ways of paying for anything, including paying off debt. The average credit card interest rate is over 19% APR, so it can be much more costly to pay off a credit card than to pay a debt to the IRS.
State & Local Taxes
Being behind on state or local taxes is a totally different game. While states and local tax authorities have debt settlement programs, they can be very different from the IRS. Some states may forgive interest but not penalties; for example, while other states do the opposite.
For more information about paying your state tax bill, contact your state comptroller’s office. You can also visit NASACT.Org for a list of auditors, comptrollers, and treasurers for each state.
Other Debt-Relief Help
There are other ways to deal with your tax bill that don’t involve getting more debt. In fact, the following options could not only help you solve your IRS debt but deal with other financial problems:
Credit counseling: A certified, nonprofit credit counselor can look at your whole financial situation to give you advice and offer the best strategies for getting out of debt. Their services are free or cheap.
Legal help: A lawyer can help you find ways to get rid of debts that you can’t pay, and in some cases, bankruptcy may be an option for clearing tax debt.
IRS Taxpayer advocate: An IRS’s taxpayer advocate can help you find your payment options, suggest solutions, and link you to taxpayer resources.
Get Professional Help with Your Debt
Many companies offer to “help” with tax debt, but few can actually do it. Before sharing your tax information with a third party, make sure you look for a reputable nonprofit credit counseling agency or a qualified professional.
When it comes to getting financial advice, credit counselors are among the few professionals who can answer questions and offer honest advice (without hidden motives). You can make an appointment to talk to a counselor about tax debt and any other financial issues you have, such as budgeting, credit reviews and managing other debt.
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