Tax Relief Explained
Navigating the wide world of taxes has long been a perplexing and arduous process that few feel comfortable handling on their own, and that’s ok! Tax debt relief services and professionals like certified public accountants (CPAs) and enrolled agents (EAs) exist to understand and stay abreast of the rules governing taxes so you don’t have to.
According to the US Government Accountability Office (GAO), 21% of Americans owe money to the IRS. These are taxes that went unpaid — either partially or fully — in the year they were due.
While it won’t erase your tax debts and obligations, tax debt relief can help alleviate your tax burden by reducing the amount of taxes owed to the IRS. It can come in a few different forms, such as a tax credit, deductions, or tax debt forgiveness, but it essentially consists of programs created by the IRS to decrease your tax bill.
Recommended Tax Relief Services
Getting Tax Relief
If you’re having trouble paying your taxes when they’re due, there are a few ways to get IRS tax relief. Below are the most popular avenues to consider.
Offer in Compromise
This type of tax relief is a sort of negotiation or compromise with the IRS for those struggling to pay their full tax liability or if doing so creates a financial hardship. It’s a legitimate way for you to settle your tax debt for less than what you owe and it takes into consideration a few factors, such as your income, your asset equity, and your overall ability to pay.
To ensure you’re eligible, all required estimated payments and tax returns must be made along with the application fee. You’ll also need to fill out a Form 433-A (individuals) or a 433-B (businesses), and a Form 656 along with all necessary documentation.
IRS Repayment Plan
Another strategy for tackling tax debt is the IRS Repayment Plan. This allows you to break down the full amount you owe into smaller and more manageable payments while avoiding levies and garnishments. You’ll still be on the hook for interest and penalties for being late until you’ve paid off your balance in full.
This type of tax debt relief is either short-term (payments made over the span of 120 days or less) or long-term (payments made over the span of 120 days or more). A short-term payment plan is only for individuals, not businesses, and won’t be liable for a user fee. The most you can owe with a short-term plan is $100,000 in combined taxes, penalties, and interest.
A long-term plan has fees and the most you can owe is $50,000 in combined taxes, penalties, and interest.
Penalty Abatement
If a hefty tax bill you can’t pay isn’t enough, there can also be penalties and interest that are piling up and from which you may need relief. Penalty abatement is a form of tax relief meant for those with special circumstances that have led to an inability to pay taxes, such as experiencing a natural disaster, hospitalization, serious illness, or other uncontrollable circumstances. This is known as reasonable cause penalty abatement.
There is also a first-time penalty abatement, which is the most widely available type of IRS waiver. If you don’t have a track record of tax penalties and not filing your taxes on time in the past, the IRS may qualify you for a first-time penalty abatement where they will waive your penalties.
Every day your bill goes unpaid, the IRS will tack on a substantial amount of fees and interest for each day the amount owed goes unpaid. So it’s worth seeing if you qualify for penalty abatement.
Tax Relief Companies: Are They Worth It?
In short, yes. Tax relief companies not only provide guidance on the harrowing and complex process of tax debt relief but they can help lower what you owe substantially. Tax relief services are comprised of licensed tax professionals who are well-versed in navigating the maze of IRS rules. Typically through a free consultation and financial analysis, they can determine which tax relief program you qualify for and help you through the process from start to finish for a fee. Additionally, tax relief companies can provide guidance on IRS audits and even go to court or communicate with the IRS on your behalf.
The key is to find a reputable tax relief company to work with and avoiding scammy businesses. While there are legitimate firms that will require an upfront fee, there are also companies that will try to scam taxpayers by making unreasonable promises to eliminate their tax debt for an upfront payment. So how do you know who is legit?
The best way to ensure you’re working with a reputable tax relief company is to look at online reviews and testimonials, and make sure the staff consists of licensed tax attorneys. A reputable business will offer a free consultation and won’t make any promises or guarantees to solve your tax problems.
Below are some signs of a tax relief company scam:
- Promising or guaranteeing to eliminate your tax debt
- Soliciting their services through letters or emails
- Failure to assess your specific tax background
- Trying to delay your case, like asking for the same documents repeatedly
- Not being upfront about their fees
Benefits of Hiring a Tax Relief Company
Every American can likely agree that the IRS is downright intimidating, and the last thing you want is to be audited. But the complex rules and regulations governing how we file taxes — which can change every year — along with tax jargon can make the process even more daunting for taxpayers.
Hiring for tax relief services simplifies the process and brings it down to a digestible level for the average American. Below are a few ways you can benefit from using a professional:
- Wage garnishment and asset seizure are two major ways the IRS collects on their debt, but they’re avoidable if you know what your options are. A tax relief firm can help you find the best option if you’re unable to pay your tax debt.
- A tax specialist can prevent or stop tax liens and levies by diving into your specific IRS collection case.
- They can interpret tax law many of us don’t have the time to learn and help explain the complexities and processes involved.
- They can find the best solution for your specific tax situation.
- They can step in as your tax representative to help protect and negotiate on your behalf.
- Hiring a tax professional will not only help alleviate your tax issues but prevent further ones from coming up in the future.
Final Thoughts
If you’re like many Americans looking for tax debt relief, take comfort in the fact that you’re not alone and that there are options to relieve your tax burden.
Whether it’s an offer in compromise, an IRS repayment plan, penalty abatement, or some other type of tax relief, it’s worth doing your research and seeing what you qualify for. You can find all the information you need about your IRS notices, penalties, tax relief options and more on the IRS website, or you can save yourself the hassle by hiring a tax relief company to work with you on finding the best option.
