Are you getting a bill from IRS this year? You’re not the only one who feels this way. But what if you can’t pay what you owe the IRS because you don’t have enough money? There’s no need to panic if you find yourself in this terrible scenario. The Internal Revenue Service (IRS) offers many tax relief choices that may be beneficial to you.
What if we tell you that you may be able to break down your debt into manageable installments or minimize your tax debt through tax relief.
No, tax relief will not eliminate your tax bill. Although sometimes it may end up costing you more in the long run, it may make paying what you owe the federal government a lot easier.
What is tax relief?
Tax relief reduces the taxable amount from your gross income during the tax year, lowering your taxable income. Tax reliefs can be claimed in addition to any personal tax allowances you may be entitled to. It allows you to keep more of your earnings and pay less tax.
It’s not about eradicating your tax debt; it’s about putting up a payment plan or reaching a settlement with the IRS. Rather, it’s about making it easier for you to pay off your tax obligation.
Natural disaster victims, such as hurricanes and wildfires, are sometimes eligible for Special Tax Relief. Disaster victims may be eligible for deadline extensions and can claim casualty losses on their federal tax returns.
4 Strategies of Handling Tax Relief
You have various alternatives when it comes to tactics for handling taxes that you can’t afford to pay in full when they’re due. Here are four options you could consider.
1. IRS Repayment Plan
You may be able to break down your whole sum into smaller installments with the IRS’s permission. You must owe $50,000 or less in combined taxes, penalties, and interest to be eligible for a long-term payment plan (paying over 120 days or longer).
Your tax bill might be as high as $100,000 if you choose a short-term payment plan of 120 days or less.
Although IRS payment plans might be beneficial if you don’t have enough money to pay your tax debt in full, they are not free. You may be charged a setup fee of up to $149, plus penalties and interest, until your debt is paid in full, depending on the plan you pick.
2. Offer in Compromise
Suppose you’re having trouble paying your tax bill in full. In that case, the IRS may enable you to settle your tax obligation for a lower amount than you owe through an offer in compromise.
According to the IRS, an offer in compromise may be a reasonable choice if you cannot pay your full tax debt. An Offer in Compromise also comes in handy if you can prove that paying your tax debt in full would cause financial hardship.
The IRS will examine the following elements while considering your offer in compromise application:
- Your financial capability
- Your income
- Your spending
- Your assets
3. Interest Abatement or Penalty Relief
There’s a chance you’ll be eligible for an IRS penalty reduction if you satisfy specific requirements. For example; If you don’t have any tax penalties for the previous three tax years on your tax statement.
Even if you qualify for Interest Abatement, you will still owe taxes. Still, your overall debt will be reduced once the penalties are deducted from your outstanding sum.
4. Personal Loans
Taking out a personal loan is another alternative to consider if you don’t have the finances to pay your tax obligation. Before taking this path, see whether you can get a personal loan cheaper than what the IRS payment plan offers.
If you decide to take out a personal loan to cover your tax debt, shop around for the lowest rates and terms. Before applying, checking your credit reports might also help you understand what lenders would notice when reviewing your application.
3 ways to successfully get started with tax relief
When it comes to getting tax relief successfully, you have three options;
- Get it done yourself.
- Get help from a Tax Relief Organization.
- Hire a Tax Relief Professional.
1. Get it done yourself:
You can handle the whole process yourself if you know what you are doing. If you are familiar with the process and are versed with loopholes in the tax system, you will do great by yourself.
But if you are not a specialist or have limited knowledge about taxes, consider the next two options. You only have “ONE CHANCE” to get it right. Just a single mistake or wrong filing could cost you thousands of dollars more.
2. Tax Relief Organizations
If you owe a minimum of $10k in taxes, you should consider contacting a tax relief organization. These organizations can help you save thousands of dollars with little cost because they have extensive knowledge and experience.
More: Watch this video presentation on how a tax relief organization can help you get the best deal on your taxes.
Tax relief organizations frequently offer their services to suffering taxpayers on the internet, radio, and television. Tax relief providers essentially negotiate with the IRS on your behalf for a charge. That price may run into the hundreds of dollars, and there’s no guarantee that they’ll be any more successful than if you went it alone with the IRS.
Suppose you employ a professional tax relief firm to represent you. In that case, they may contact the IRS to agree on an offer in compromise, an installment plan, or penalty or interest abatement.
If you want a third party to represent you, make sure you pick a trustworthy and knowledgeable tax specialist.
It is important to note that the IRS only allows specific organizations or individuals to represent you for tax relief. These organizations or individuals are;
- Tax Specialists.
- Enrolled Agents (federally-authorized tax practitioners who can represent taxpayers before the IRS)
- Certified Public Accountants (CPAs)
3. Hire a tax relief professional
After hiring a tax relief professional, the next step is to work on whichever resolution works best for you. Once you’ve engaged your Tax Professional, they’ll set the scene with the IRS for what will happen next.
Your Tax Relief expert will explain your alternatives and provide a suggestion, but the final decision will be yours. Once you’ve made your decision, your agent will begin drafting and eventually submitting all of your case’s documentation.
Note: A terrible Tax Relief specialist might make mistakes or jeopardize your case due to neglect or poor work. So you must ensure that your representative is competent, conscientious, and truthful.
Being knowledgeable is a criterion that speaks for itself. Your agent must be vigilant in following up on IRS communications or queries from you.
Sincerity is likely the most important quality that distinguishes excellent tax agents from bad.
“Pennies-on-the-dollar” is a common expression in radio and television ads, as dishonest businesses try to attract taxpayers with promises of low percentage settlements without offering any context.
How does Tax Relief Program Work?
There are two phases in a tax relief program, Investigation, and Negotiation;
Phase 1 – Investigation: The first phase is when a tax relief company stops the IRS from coming after you. This company does a complete investigation to determine if you really owe what the IRS says.
Phase 2 – Negotiations: The tax relief company starts with the negotiation process upon completing the investigation. This company will negotiate with the IRS to reduce the amount of debt that you owe the IRS. This way, you can start fresh and stress-free.
Depending on the tax relief company you use, your debt could be reduced by thousands of dollars. But it is not always a guarantee because your situation with the IRS might be different.
Most reputable tax relief companies will tell you straight up if you are eligible and how much reduction they can get you.
How do I know whether I’m eligible for tax relief?
The IRS examines your capacity to pay, your income and expenses, and how much money you have in assets when determining whether you qualify for tax relief through an offer in compromise.
A tax relief organization or consultant can tell you if you qualify or not. Suppose you don’t qualify. They will find loopholes in the tax system to make sure you become eligible for tax relief. That is why if you are not familiar with the tax system, you should get help from these professionals.
What Impact Do Unpaid Taxes Have on My Credit?
Don’t be concerned that the federal tax amount you owe will negatively impact your credit ratings. Your credit reports will no longer show tax liens. This means they won’t affect your ® Score or VantageScore® in any way.
However, just because tax liens aren’t included on your credit reports doesn’t mean they won’t negatively affect you when applying for forms of financing. Unpaid tax liens may show up in public records reports, which certain lenders may verify.
Furthermore, your credit ratings may suffer if your tax payments impact the rest of your financial picture, causing you to fall behind on other expenses. Being proactive has its benefits.
Remember that attempting to avoid paying your tax obligation will not benefit you. Ignoring your tax situation will make it worse as interest and costs continue to mount.
Be proactive, submit your taxes, and contact the IRS to learn more about your alternatives. If you’re feeling overwhelmed, you may get help from a competent tax expert, but you also have the right to contact the IRS on your own.
Don’t panic when you get that letter from the IRS that you owe them from your taxes. Get help from professional tax relief organizations or professionals who can help you drastically reduce the amount you owe.