If you suspect you’re going to owe the IRS money you don’t have, you should understand your options for tax relief. Here are five ways to get some tax debt help.
1. Pay what you can
No matter what you owe, you should still try to file on time (or file an extension if you can’t make the deadline). Filing an extension will give you more time to file your taxes, not more time to pay your bill, but skipping the extension can lead to harsher penalties.
If you don’t pay your taxes, the IRS charges interest on what you owe. You may not be able to afford your whole tax bill, but if you pay a portion of that bill, you’ll cut down on the amount of interest you’ll have to pay on the rest of your owed taxes.
2. Consider an IRS payment plan
An IRS payment plan allows you to pay the taxes you owe within an extended time frame.
Once you set a monthly payment plan, you can’t renegotiate those payments. The IRS allows you to pay it off up to months you can always pay extra, but you can never pay less then the plan.
Keep in mind, a payment plan will incur some interest and penalty charges. You may also have to pay a processing fee for using a debit or credit card and a setup fee, depending on the length of your payment plan and whether or not you apply online.
3. Ask for a ‘currently not collectible’ status
Those who can’t pay their tax bill may ask to be put into “currently not collectible” status by the IRS. This means the IRS will temporarily delay collection until your financial situation improves. Keep in mind that this is just a temporary label the IRS puts on your account; the status is not permanent, and you will eventually need to pay your tax debt. (The IRS can also still file a lien against you while you have this status.)
To obtain a currently not collectible status, you’ll need to fill out a form and provide information about your assets, monthly income and expenses. You must have little or no money left over after paying essential living expenses each month, such as rent, utilities, and groceries, to qualify for this relief.
4. Apply for an offer in compromise
An offer in compromise lets you settle your tax debt. One of the major benefits of an offer in compromise is that you will end up paying less than what you really owe.
This program is available for those who need it, which means the IRS will assess your income, expenses, assets equity, and overall ability to pay your debt as it considers your offer in compromise. The IRS might also approve your application if it appears highly unlikely that you’ll ever be able to pay off the tax debt in its entirety based on your income and the value of your assets.
Applying for an offer in compromise is a long process that involves a lot of documentation to prove you can’t afford your tax bill, a $205 application fee and an initial payment toward your bill. There are two payment options for an offer in compromise: a lump-sum payment plan, and a periodic payment plan. Applicants must submit a 20% down payment if they choose a lump-sum payment plan, and then they settle the remaining balance of their OIC in no more than five subsequent payments. Applicants who use a periodic payment plan must make monthly payment plans.
5. Consult a specialist if you can
Pittman advises people to see a tax professional before taking action with the IRS.
“People are not aware that there are different options with the IRS. They automatically assume all they have is the installment agreement, on which you have to pay the penalties and interest.”
Let us know how we can help – contact us at https://myfiscaloffice.com/connect/
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