Tax Debt Relief Options

Tax Debt Relief Options

If you owe money to the IRS, you may be feeling overwhelmed. But there are options to find tax debt relief. This article will explain the common ways people get IRS tax forgiveness or make their tax debt more manageable.

Payment Plans

One of the best options offered directly through the IRS is to set up a payment plan. This allows you to pay off your tax debt over time in monthly installments. There are a few types of IRS payment plans:

• Short-term payment plan – Pay off tax debt in 180 days or less
• Long-term payment plan – Take over 6 years to fully repay tax debt
• Partial payment plan – Make monthly payments based on what you can afford

The main benefit of IRS payment plans is being able to avoid aggressive collections like wage garnishment while you are making payments. Interest and penalties continue to accrue, but the rate is usually lower than other types of debt. To qualify, you’ll need to fill out IRS Form 9465.

Offer in Compromise

An offer in compromise allows you to settle your tax debt for less than the full amount owed. The IRS will consider an offer in compromise if:

• You have no way to fully pay off your tax debt
• Paying your tax debt would cause you economic hardship

The IRS looks at factors like your income, expenses, assets, and ability to pay when determining if you qualify. They reject a majority of offers, but it can still provide tax relief if approved. You’ll need to fill out IRS Form 656 to apply.

Penalty Abatement

Penalties really add up when you have a tax debt. The IRS may agree to reduce penalties through penalty abatement if:

• You have a clean history of filing/paying on time
• You can prove reasonable cause for falling behind

This can remove tens of thousands in penalties, though interest will continue accruing. Send a penalty abatement request to the IRS to see if you qualify.

Currently Not Collectible Status

If you truly cannot afford to make any payments towards your tax debt, you may request “currently not collectible” status. This puts a hold on IRS collections and pauses penalties and interest accrual. To qualify, you’ll need to show you have less income than reasonable living expenses.

This doesn’t make the debt go away. The IRS can start collections again if your financial situation improves. But it offers temporary tax relief for those in financial hardship.

Tax Debt Relief Companies

You’ll see lots of advertisements for tax debt relief companies. They promise to lower your tax debt or make it go away. But be careful – many of these companies overpromise and underdeliver.

Legitimate tax relief companies can help you through the process of settling your tax debt. But they use the same IRS programs you can access yourself for free. And they charge high fees for something you may be able to do on your own.

Make sure to research any tax debt relief company thoroughly before choosing to work with them. Look out for red flags like:

• Guarantees they can eliminate your tax debt
• Upfront fees before providing any services
• Refusal to provide details on their proposed methods

Settle Directly with the IRS

Before turning to a private company, try working directly with the IRS to resolve your tax debt. The IRS understands that people face financial hardship and provides various programs to help taxpayers get relief.

You can call the IRS at 800-829-1040 to explain your situation. They can help determine if you qualify for any tax relief programs based on your specific circumstances.

Take Out a Loan

If you don’t qualify for IRS tax relief programs, taking out a loan is one way to pay off your tax debt quickly. Options include:

• Personal loans – Unsecured fixed-rate loans from a bank or online lender
• Home equity loan – Secured loan against home equity
• 401(k) loan – Borrow against your retirement savings

The benefit is paying off the IRS right away before penalties and interest build up. But it also means taking on expensive debt. Only consider this if you can get a low interest rate and can comfortably afford the monthly payments.

Credit Cards

In a pinch, some taxpayers turn to credit cards to pay their tax debt. This can work if you get a card with a 0% intro APR. You can avoid interest initially by paying off the balance before the intro period ends.

Just keep in mind that credit cards have high ongoing interest rates. This approach can lead to even bigger financial issues if you can’t pay off the balance quickly.

Payment Extensions

If you just need a little extra time to pay your taxes, filing an extension gives you an additional 6 months. While there is no penalty for filing late if you have an extension, interest still starts accruing after April 15.

Payment extensions provide temporary relief by avoiding late filing penalties. But your tax debt continues to grow due to interest charges.

Bankruptcy

Filing for bankruptcy stops IRS collection efforts and can eliminate tax debt entirely in some cases. To qualify, you must prove the tax debt is causing undue hardship.

Bankruptcy damages your credit badly and has long-term impacts. But for some people with no other options, it can provide tax debt relief when properly timed.

The Bottom Line

If you owe back taxes to the IRS, don’t panic. Take a deep breath and explore your options. There are various tax relief programs available from the IRS, tax professionals, and private companies.

The key is finding a tax debt solution that works for your unique financial situation. Consider all alternatives and consult with a tax expert to determine the best path forward. It may take time, but you can find a way to resolve your tax debt.