Are you experiencing mounting anxiety over your tax debt?
It’s easier than most people think to accrue tax debt.
Tax debt constitutes any balance you own to the Internal Revenue Service (IRS) after you’ve completed filing your taxes for the previous year. If you pay only part of your taxes before the filing deadline, you will likely have tax debt.
Over time, as you fail to pay off this debt, you face greater financial penalties.
If you or a loved one is facing debt to the IRS, you do have options.
In this post, we’ll take a look at tax debt relief opportunities so that you can live the next year burden-free!
Tax Debt 101
Before we look at ways to get out of tax debt, let’s talk about how it accrues.
Every year, American citizens are required to file their taxes before the national deadline of April 15th. For many citizens, filing taxes means a refund from state and federal governments.
But for others, it may involve owing a balance to the IRS. A lot of individuals may not be able to pay this balance at the time of filing their taxes, or neglect to pay it for various reasons.
Others may simply not file their taxes at all. In this case, the IRS files a substitute tax return for you and estimates your tax liability. However, the IRS won’t incorporate any deductions that you are eligible for in this situation.
Any tax balance that goes unpaid to the IRS becomes debt. Typically, the IRS will charge a 0.5% penalty on this balance, in addition to interest.
However, if the individual fails to pay off this balance over time, this penalty can rise to as steep as 25% of the balance itself. What’s more, accrued tax debt can impact your credit score negatively.
This entire time, interest continues to build.
This can be incredibly intimidating to people who simply don’t have the financial means to pay off this debt when it’s due. For others, it can feel like a neverending cycle of debt without any form of relief.
Tax Debt Relief Options
There is always a solution when it comes to debt, and individuals with tax debt have options. Let’s take a look at these now.
1. Explain Your Debt
The first thing to do when you have tax debt is to inform the IRS about the reasons why you cannot pay your tax balance for the year. This is giving the IRS “reasonable cause” about your situation.
It’s similar in many ways to explaining to hospitals and clinics why you can’t pay medical bills fully at a certain time.
However, the IRS is specific about acceptable causes for not being able to pay taxes.
It states that penalty relief can come about if you weren’t able to file your taxes or pay them off because of natural disaster, inability to retrieve tax records, and/or death or serious illness.
The IRS may also make exceptions for people who did everything they could to file taxes but simply could not. It does not generally forgive penalties for people who simply don’t have the money.
To plead for penalty relief, you can call the toll-free IRS number listed on any IRS notice you receive. You may also have to provide documentation to support your case.
2. Look for Errors
When it comes to tax debt relief, you may not even have to plead for it. Inspect your notice of tax debt for any informational mistakes.
Believe it or not, mistakes do happen. If you notice an error in computing or personal information, call the number listed on the form immediately to resolve it.
This could eliminate or reduce any penalties.
3. Set Up An Installment Plan
You can easily set up an installment plan to pay off your tax debt over time. This involves monthly payments much like a credit card account.
Interest and penalties will still occur. However, a payment plan can give you peace of mind knowing you’ll pay off your tax debt within a certain window of time.
You can apply for payment plans online through the IRS’s Online Payment Agreement Tool, through the mail, or over the phone. However, we recommend calling the IRS to determine if you qualify for this.
4. Obtain an Offer In Compromise
When you file for an Offer in Compromise, you request to pay a lump sum that’s less than your tax debt balance. However, this lump sum will effectively eliminate your debt.
An OIC essentially involves pitching the IRS for paying off your taxes for less than the agreed balance. The IRS will consider your assets, expenses, income, and ability to pay the balance in your application.
The application process is extensive, and as you’re waiting for a response on your OIC you will still accrue interest and potential penalties on your tax debt.
However, OICs are ideal for people who are in need of tax debt relief due to insufficient funds.
5. Consolidate Through a Credit Card Company
You can find tax debt relief through most credit card companies. Much like transferring credit card balances, you can consolidate tax debt through a credit account.
Be sure to consolidate debt through an actual credit card company, rather than a credit card settlement company. The latter can quickly rack up unnecessary fees.
6. Consult a Tax Professional
At the end of the day, the most effective way to find tax debt relief is to consult a tax professional.
An expert will best be able to assess your financial situation and determine the best option for pursuing tax debt relief. They’ll also help moderate wage garnishments, levies on your bank account, and high penalties.
A tax attorney can help negotiate the best interest rates for payment plans given your situation, too.
Tax Debt Relief
If you’re facing tax debt, don’t panic. You do have options for immediate relief.
Inspect your IRS notices for any errors, and consider pleading for penalty relief by stating a reasonable cause for your debt. You may want to apply for a payment plan or Offer in Compromise, depending on your situation.
At the end of the day, you can find tax debt relief by consulting a tax professional.
At Tax Relief Professional, we are here to help you navigate your path to tax debt freedom. Have questions? We have answers. Reach out to us today!