Top Tax Debt Resolution Steps
What can you do when you are struggling with a large tax debt? Explore the steps you need to take and relief options available to you.
Benjamin Franklin, one of the founding fathers of the United States, famously remarked that "the only two things in life that are certain are death and taxes." While taxes are a necessary part of life, tax debt can be a significant source of stress for many individuals. The reasons for tax debts are varied. Sudden job losses, unexpected illnesses, catastrophic events like house fires, or even the death of a family member can create financial turmoil. Such challenges often result in missed deadlines or forgotten tax payments. However, struggling with tax debt doesn’t have to be a permanent burden. Taking quick and informed action can help you regain control of your finances and avoid long-term consequences.
To begin resolving tax debt, consider exploring payment options with the IRS. Programs like the Installment Agreement and Offer in Compromise can provide relief depending on your financial situation. The Installment Agreement allows taxpayers to pay their debt incrementally, while the Offer in Compromise enables some to settle for less than the total amount owed. Before applying, gather all necessary documentation, such as proof of income, assets, and expenses, to demonstrate your financial hardship. Understanding your rights as a taxpayer is also essential. The Taxpayer Bill of Rights ensures you have the right to clear communication, representation, and fair treatment. Additionally, programs like the IRS Fresh Start Initiative aim to make it easier for taxpayers to manage their debts by simplifying eligibility criteria for certain relief options. Tax professionals and nonprofit organizations specializing in tax relief can guide you through these processes, ensuring you make informed decisions.
Taking proactive steps and leveraging available resources can help you resolve tax debt efficiently, setting the stage for a more stable financial future.
What is Tax Relief?
Tax relief is a means of finding a resolution for accumulated tax debts. There is a common misconception that tax relief means eliminating tax debt entirely without the need to pay. However, tax relief still requires some debt repayment. It is simply a means by which paying tax debt is made easier. Sometimes tax relief involves the temporary postponement of a payment or forgiveness of part of the total amount owed. Tax relief may come from the IRS itself. There are also many tax relief experts and companies available to help you settle tax debts in an easier way.
What Are the Types of Tax Relief Offered By the IRS?
The IRS often works with taxpayers to simplify tax payment. Taxpayers are encouraged to speak with IRS officials, rather than try to avoid tax debt problems. There are several common IRS solutions available. For example, the IRS may waive certain fees accrued as a result of paying taxes late. That is called penalty relief. Penalty relief is most commonly provided when a taxpayers are unable to make payments on time for what are considered reasonable causes. Such causes include but are not limited to:
- Death of an Immediate Family Member
- Experiencing a House Fire
- Being Directly Impacted By a Natural Disaster
Penalties are also withdrawn or not applied in the first place when taxpayers meet certain extenuating circumstances. For example, taxpayers who have already negotiated tax payment terms are not typically assessed additional penalties. Taxpayers who officially file for tax payment extensions before required deadlines are also not penalized.
In addition to penalty relief, the IRS often compromises with taxpayers who cannot pay their full tax debts. Agreements called “offers in compromise” are established in such instances. To qualify for offers in compromise, taxpayers must demonstrate financial hardships. Taxpayers who apply for offers in compromise must agree to IRS assessments of their incomes, assets, and expenses.
What Are IRS Payment Plans, and How Do They Work?
When taxpayers agree to repay all of what they own to the IRS, they may not have the ability to do so all at once. The IRS allows the creation of payment plans for such circumstances. There are short-term and long-term payment plan options available. Both are plans that allow taxpayers to make partial repayment of their debts on a monthly basis. The plan lengths are determined by the amounts owed, as well as how much the taxpayers can afford to pay monthly.
IRS payment plans offer some relief for taxpayers. However, determinations regarding the sizes of the monthly payments are made at the discretion of IRS officials. They make those determinations based on financial data provided by the taxpayers. IRS payment plans also require payment of interest and sometimes penalties. Therefore, taxpayers on payment plans typically pay more than they initially owed by the time all payments are completed.
What Are Other Tactics to Control Your Tax Bills?
If you do not wish to compromise with the IRS or get on a payment plan, you must find another way to eliminate your tax debt. One tactic you can use is applying for a personal loan. You can use the loan funds to pay the full balance you owe to the IRS. Another option is to get help and advice regarding repayment of tax debt from tax experts like certified public accountants (CPAs) or a federally-authorized tax agent. If necessary, you can also seek assistance from an attorney specializing in tax-related cases. Any of those representatives can legally speak to the IRS for you in an effort to get your tax relief issue resolved.
What Are Tax Relief Companies and Which One Should You Hire?
Tax relief companies are third party companies that offer negotiation services. A tax relief company can speak to the IRS on your behalf only with your authorization. However, a tax relief company cannot guarantee resolution, and you must pay for the services it provides. Therefore, you could increase your total debt. For the best chance of success, it is important to hire a reputable tax relief company. Here are some of the top companies in the industry, as of 2024:
What Should You Know About Tax Relief Consultation Options?
As you can see there are many tax relief consultation options available to you. However, you are not obligated to use them. Often, talking directly to the IRS is the fastest and easiest way to resolve an issue. It is also typically the cheapest option. If you do opt to use tax relief consultation services, choosing a properly accredited accountant, attorney, or relief service is essential. Many tax relief scams exist that can cause you to lose far more money than you save in the long run.
Final Things to Know About Tax Resolution
The two most important things to know about tax debt are it is fairly normal and it requires quick resolution. Feeling ashamed of your tax debt is normal, but trying to avoid it only causes more fees and penalties to accrue. Take the necessary steps for tax relief now to avoid such problems and alleviate your tax-related stress.
