Millions of Americans struggle to keep their finances in order and their debt at bay. If you have tax debts, you need to know that reducing them or even eliminating the total amount is possible. Many of your fellow taxpayers have likely successfully reduced their federal tax deficit by following the advice of a tax professional or by using the right strategies against the IRS. If you’re facing a hefty bill from Uncle Sam, make sure you work with someone who knows how to reduce tax debts.
Understand your tax debt.
Tax debt is a type of debt. The IRS is responsible for collecting money owed by taxpayers and paying out refunds on time. You may be charged with tax debt from the IRS when you do not pay your taxes in a timely manner.
- Tax debts are due to taxes owed on your income.
- Tax debts have interest/s late fees attached to them.
- The IRS can sue you for failing to pay your taxes. If you owe over $50k, the IRS will take action against you as soon as possible (within weeks). If you owe less than $50k, they’ll give you time before taking legal action against any non-payment.
Penalties are charged when you do not file your taxes or when you file late. Penalties can include fines and interest charges on top of the amount you owe in taxes.
A levy is an order organized by the IRS to withhold funds from your bank account or freezes your assets in order to pay off what you owe.
A tax lien is a legal claim on your property that gives you a claim against the property until you pay your taxes. The IRS puts a lien on your house or other property in order to ensure that they get paid when you sell it.
Know your IRS payment options.
- Payment plans. If you’re facing a large tax bill, the IRS might let you pay it off in installments. The IRS offers two types of payment arrangements: an installment agreement and an offer in compromise (OIC).
Installment Agreements.
Not all taxpayers are eligible for an installment agreement, but it’s the most common way to resolve your tax debt with the IRS. An installment agreement allows taxpayers to settle their debt over time through regular monthly payments. Some tax debt relief agencies help you determine how much money you should put toward your monthly balance based on factors such as your income and expenses. They also review your financial situation if you don’t qualify for other payment arrangements because of their complexity. Or for both reasons.
Offer in compromise (OIC)
The OIC program is an IRS program that allows taxpayers unable to pay their tax liability in total to settle their debt for less than the full amount owed. For this tax debt relief program, you must be able to:
- Demonstrate financial hardship
- Unable to pay your entire tax debt through installments or a monthly payment plan with the IRS.
- Have no other assets from which you can pay your tax debt off in full and be current on all your income tax liabilities (such as payroll taxes).
You may initially check this tool from the IRS website if you qualify for the Offer in Compromise program.
Offer in Compromise Pre-Qualifier (treasury.gov)
Fill out the correct paperwork.
The IRS has several forms to process your tax refund or assess you for additional taxes you owe. If you file the correct paperwork from IRS, you will have a better chance of getting your taxes done correctly.
Some of the most common tax forms you need to fill out depending on the information you need to submit or receive are listed below:
- IRS Form 1040
US Individual Income Tax Return
- IRS Form 1040-ES
Estimated Tax for Individuals
- IRS Form 4506-T
Request for Transcript of Tax Return
- IRS Form 9465
Installment Agreement Request
You can check the other IRS forms using this link Forms & Instructions | Internal Revenue Service (irs.gov)
Negotiate with the IRS.
Negotiation is a process by which you and the IRS discuss your debt. The IRS will not negotiate with you unless it considers your financial situation extreme, such as if you are in bankruptcy or foreclosure on your home because of your debts. If the IRS is willing to negotiate with you, it will send a letter.
Here are some tips for negotiating your tax debt:
- Know Your Exact Amount of Tax Debt
The first thing you need to act is to figure out how much you owe in taxes. The most straightforward approach is to go online and look at your tax records. You can request a duplicate of your tax return from the IRS from last year. If you don’t have any documentation of your taxes, you can call an accountant or accountant firm and ask them to figure out what you owe based on last year’s income.
- Talk to Someone About Your Debt
Once you’ve figured out how much tax you are indebted to, it’s time to talk about it with someone who works at the IRS. You can call them up or go into their office—the important thing here is that they know exactly how much money they’re owed, so there aren’t any surprises later on down the road!
Find a tax debt relief agency to help you.
If you find yourself in a situation where you owe the IRS or state government and don’t have the money to pay them, options are available. You can find a tax relief agency to help with your tax debt issues.
- Make sure they are reputable: Check some reviews online or ask if anyone has used this company before and if they were satisfied with their services.
- Ensure they are licensed: This is typically important for companies that work directly with the IRS, rather than just advising clients on how to deal with their tax debts (for example). If at all possible, make sure that any company offering this kind of service has either an Enrolled Agent (EA), Tax Attorney, or CPA license so that they can legally represent you and your interests in dealing with the IRS or state government agencies when it comes time for negotiation/payment plans etcetera.
- Make sure they have experience: This doesn’t mean just simple experience working as an employee at various firms across town; it should also include experience working within one firm itself over several years – ideally more than five years! They need extensive knowledge of how each process works. Hence, they know what questions might come up during negotiations – and how best to address those questions before becoming an issue later down the road (which could mean lost opportunities).
At the end of the day, everyone wants to pay their taxes and avoid penalties. But if you find yourself with significant tax debt, don’t panic! There are many ways to reduce and get back on track with your life. The sooner you begin, the less interest you will have to pay and the more money you will save. If you have questions about your available options for payment plans or you want to get a tax debt relief consultation, contact us today so we can help.
