Falling behind on income tax payments is never a good idea. When the government discovers what you owe them, they will not only send you a bill, but they will also charge you interest if you do not pay. If you wait, the effects will be considered severe in the long term.
It is a relief to know that the IRS will occasionally work out a compromise with taxpayers who can demonstrate a lack of funds rather than an intent to defraud. If you owe tax but cannot pay it right away, the IRS offers you several options. Knowing your options is crucial to selecting a plan that works for you.
Tax relief services
Tax relief refers to a government program or policy effort aimed at businesses and people by lowering their tax obligations.
Tax relief service might take the shape of a distinctive program for selected taxpayer groups or applying contributions to a government effort.
There are several sorts of tax relief available.
Installment Plans
Installment plans are like house loans. Except, instead of paying a lender each month, you pay the IRS. It is not always workable to qualify for a tax payment plan. As a tax collection agency, the IRS always wants to receive tax payments rather than not receive them. However, it has no interest in entering into a payment plan with a taxpayer who has yet to pay the monthly payments.
Release Wage Garnishments
The IRS can garnish your earnings if you owe money and haven’t reached a payment agreement. It can also withhold federal benefits (Social Security, tax refunds) until your tax obligation calls settled or the statutory collection time limit expires. If you’ve been struck with garnishment and can’t make ends meet, contact the IRS to request a modification. If the IRS agrees, the amount of money garnished by the IRS might get reduced.
Programs for Innocent Spouses
You can get held liable for an underpayment if you submit a joint tax return with your spouse, even if you are divorced. Yet, if one spouse, or ex-spouse, hides a tax burden from the other, the IRS grants some help to married or separated couples.
If a spouse can establish that the other failed to disclose income, declared income, or took deductions or credits that were not authorized. The misled partner may seek tax relief based on the above factors.
What is an Offer in Compromise?
An offer in compromise permits you to pay less than the entire amount of your tax bill. You may be able to turn to bankruptcy if you can’t pay your tax debt or if doing so would put you in financial difficulty. OIC may be a viable choice. IRS takes the following facts and circumstances:
- Capacity to pay
- Earnings
- Expenditures
- Asset
- Equity
When the sum provided is the most IRS can expect to collect in a reasonable amount of time, we usually approve an offer in compromise. Before presenting a compromise offer, look into all alternative payment choices. Check the qualifications of any tax professional you use to assist you during this procedure.
Eligibility for an offer in compromise
If you have not filed any needed tax returns or paid any required scheduled payments, the IRS will return any filed Offer in Compromise (OIC) application. Any application fees to the OIC will get refunded as well. Any initial payment made with the returned application will get added to your outstanding amount. Current tax returns are not affected by this policy if the extension is valid.
What is the percentage of people that accept your offer?
The importance of an OIC is getting recognized by people of all ages and income levels. In 2017, the IRS accepted 25,000 of the 62,000 Offers. That is a 40 percent approval rate.
What do to if your offer gets accepted?
The individual must comply with the Offer Terms listed in Section 7 of Form 656 upon acceptance, including filing all applicable tax returns and paying all applicable taxes; any refund due within the calendar year you accept your offer will contribute to your tax liability.
What is the OIC’s Least Offer Amount?
You’ll want to provide as little as possible. Of course, it isn’t that easy. The IRS will accept a minor offer based on your financial situation, which you must disclose in great detail on Form 433-A (for wage-earners and the self-employed) or 433-B (for the self-employed) (for businesses).
How detailed do you want to be?
- Your income and expenses:
- If you’re the beneficiary of a trust, estate, or life insurance policy, how much money you’ll get, and when you’ll get it.
- Contents of your bank accounts, assets, accessible credit, and cash-value life insurance policies
- The properties, personal automobiles, and even intangible assets like licenses, domain names, patents, and copyrights are still valuable.
What Are the Drawbacks of Having an OIC?
Providing the IRS with the vast amount of information it requires is inconvenient in and of itself, but that isn’t the only disadvantage. It can take up to a year to complete the procedure. Additionally, many months if you decide to appeal.
For the OIC to become final, you must remain compliant on all your taxes for five years, and even a little blunder gives the IRS the power to rescind the agreement and seek full payment of the debt you believed you’d avoided.
An OIC also suspends the IRS’s ability to collect taxes from you for ten years. If the IRS has assessed taxes against you for the past six years, it has four years to be collected.
Additional tips to keep in mind while paying taxes
When it comes to getting rid of tax debt that you can’t afford to pay, an offer in compromise is typically the best alternative. You do, however, have choices for decreasing your financial obligations and getting back on track.
If you aren’t qualified for an offer in compromise or get turned down, consider debt settlement and consolidation as alternatives. They can often save you money on other obligations, allowing you to pay off your IRS payments faster.
Debt consolidation and debt settlement are two phrases that get used interchangeably, although they represent two distinct approaches to debt management.
Debt consolidation is the process of taking out a single loan to pay off many creditors.
Debt settlement entails making a one-time payment to a creditor for a lower amount than is owing. If you choose this method to get out of debt, you will face penalties.
Some Additional tips:
- Credit card debt that you can’t pay off in a month is usually a terrible decision. But if you can avoid IRS penalties, it can be worth it. Make a budget before utilizing credit cards for taxes to ensure that you can afford to pay. Talk to debt management or a credit counselor about your approach.
- Finally, if you enroll in an IRS installment arrangement, be sure you pay all of your installments on time. The IRS has little patience for people who do not follow through on their agreements, and it will slap penalties and interest on your tax obligation as soon as possible.
If you’re having trouble paying your debts, get expert help. There are options for dealing with your debt.