Top 5 Tax Debt Relief Methods Available to Taxpayers
Getting relief from tax debt either means you don’t have to pay the taxes in full all at once or you settle the taxes owed for less. When it comes to getting relief from taxes owed many people don’t realize the various options that are available to them. If you can’t afford to pay your taxes in full or just don’t want to cause you feel it will hurt your financial situation too much in the time being there are methods of relief available. The IRS is very strict with the method that it allows individuals to qualify for. Some methods are available to just about everyone and others only available to a select few that can prove their financial situation justifies the relief they are applying for.
Before determining what tax debt relief method would be best for you must take a hard look at your current financial standing. There are different methods for differences in financial situations. Ok financial situation means you don’t have enough money to pay currently but you do have some stability in income. A very poor financial situation means that you don’t have the means to pay your taxes and you don’t foresee that you will ever have the money to pay what is owed. Below are methods you should consider in order from OK financial situation to a very poor financial situation.
1) Installment Agreement: Installment agreements are available to just about every taxpayer that can’t or doesn’t want to pay in full at the current time. With an installment agreement you will be allowed to pay back the taxes owed in monthly increments. The time to pay off the taxes varies by type of installment agreement but it typically ranges from 3-5 years. This form of payment arrangement is good for those individuals that don’t have the money currently but do have enough money to make the required monthly payments associated with this agreement.
2) Borrow very short term from family and friends: This method is only advisable if you know you will be receiving the money to pay them back in a very short period of time. If there is any question or doubt in your mind that you won’t receive the funds it is best to just apply for an installment agreement. Sometimes borrowing from family and friends can help save you the hassle of filling out the paperwork or if you need to act fast to prevent additional penalties or even a levy then this can be an option. This method should only be used if you are in an OK financial situation and you don’t have the money currently but know you will have the money in a short period of time.
3) Partial Payment Installment Agreement: A partial payment installment agreement is available to those taxpayers that make the required minimum payments for a normal installment agreement. This form of tax debt relief works in a similar manner to the installment agreement above but sometimes the taxpayer actually doesn’t end up paying back the entire amount of taxes owed because the statute of limitations expires on the tax debt before they have paid everything back to the IRS. In order to be accepted for this form of tax relief you must prove to the IRS through various financial statements that you do not have the funds to make the required payment needed for the regular installment agreement.
4) Hardship Status: If you can’t make any form of payments to the IRS because it would not leave you with enough money to pay for the basic necessities to live (The IRS had specific guidelines as to what are allowable expenses) then the IRS may place you on hardship status. When you are placed on hardship status the IRS temporarily pauses collections and will allow a period of up to several years to pass before they check back with you on your financial status. If your financial situation improves then the IRS will require you to pay what is owed. Sometimes individuals stay on hardship status so long that the statute of limitations expires (10 years typically) and they can no longer legally be held liable for that debt.
5) Offer in Compromise: An offer in compromise is a form of relief offered by the IRS to those individuals that are in financial distress. With an offer in compromise the IRS allows the taxpayer to negotiate the taxes they owe for a lesser amount. Sometimes the amount can be up to 99% less than the total amount owed, but typically it is around 70% less of total taxes owed. In order to qualify for this type of tax relief you must prove to the IRS that the offer you are making them is equal to or greater than the amount they would ever expect to collect from you, even if they used forced collection mechanisms. This is probably the most complex tax relief filing there is. If you think you are a good candidate for this it is a good idea to use a tax professional to help with your filing.
Tax relief is something that is available to everyone but the method used varies by financial situation. It is important to only apply for the tax relief method that you qualify for the best. The IRS is very strict about not accepting taxpayers into relief mechanisms that they do not financially qualify for. It is extremely important to work with the IRS if you cannot pay your taxes owed because if you don’t they will continue to tack on additional penalties that can be easily stopped if you were to work out a tax relief method with them.