Many Americans file their taxes knowing they can’t pay the IRS in full. Perhaps these individuals are self-employed and couldn’t save up enough throughout the year, or are employed but couldn’t afford to maximize their paycheck withholdings. Whatever the case, many individuals owe tax debt to the IRS, but not everyone takes the steps required to minimize penalties and interest.
If you can’t afford to pay the IRS on time, here are 3 tax relief strategies you can adopt to get out of tax debt as quickly and cheaply as possible. Of course, get legal advice from an experienced tax attorney during a free consultation to find out which strategy best fits your financial condition before you pursue the following.
1. Installment Agreement
The IRS offers installment agreements to enhance their ability to collect back taxes with little investment in collections. In an installment agreement, the taxpayer agrees to repay the full amount owed through a series of monthly payments. Of course, payment plans aren’t free. The IRS will charge fees for filing an installment agreement, but these charges are generally lower than the cost of pursuing an offer in compromise.
2. Offer in Compromise
Many taxpayers have heard about offers in compromise, but the tax relief strategy is not well understood. In an offer in compromise, the taxpayer and IRS agree that the taxpayer will pay less than the full amount owed to settle the tax obligation. Naturally, this concept of settling tax liability for ‘pennies on the dollar’ is appealing to taxpayers, but in truth, the settlement amount is not so much a matter of negotiation as it is a rigid procedure that dictates the offer amount and criteria for qualification.
First, not everyone qualifies for an offer in compromise. In brief, offers in compromise are warranted if there is doubt as to liability, doubt as to collectibility, or doing so serves the effective administration of taxes. Most offers in compromise are submitted on the basis of doubt as to collectibility – meaning that the taxpayer cannot pay the full balance owed. Offers in compromise filed on the basis of effective tax administration, such as when the full amount owed could be collected but doing so would create economic hardship, can also be filed but are rarer than doubt as to collectibility. If none of the aforementioned 3 situations apply to the taxpayer’s situation, an offer in compromise may not be warranted.
Second, the amount of the offer is not an arbitrary figure or product of ‘tough’ negotiation. Rather, it represents the reasonable collection potential, meaning the amount the IRS could collect from the taxpayer’s income and assets. Also, an initial payment must be made along with the offer, so filing an offer in compromise isn’t necessarily a low-cost process, even though the amount saved can be greater than the completion of an installment agreement.
3. Non-Collectible Status
Some taxpayers are truly indigent. In these cases, the IRS may agree to place the taxpayer in non-collectible status. While in this status, the IRS will not pursue collections against the individual such as by levying the taxpayer’s bank account. However, non-collectible status is temporary, and if the taxpayer makes more income in the future they may find themselves back in the IRS’s crosshairs.
Consult A Tax Attorney
Of course, it’s best to pay as much of your tax liability as possible on time. However, if you find yourself with an unpaid balance owing to the IRS, consider consulting with a tax lawyer to identify your best tax relief strategy. To schedule a free consultation with tax attorney Jin Kim call (916) 299-9913.