Several types of debt repayment programs are accessible, including a streamlined installment agreement, partial-pay installment agreements, and “stair-step” installment agreements. Remarkably, while these arrangements are available, each taxpayer must negotiate with the IRS directly to agree on their eligibility.
Debt repayment programs can offer great relief to taxpayers. In some circumstances, they can lessen their tax bill, or they may arrange to pay a certain amount on time, with the remainder forgiven after a series of on-time payments. In spite of which plan the IRS accepts, it’s essential to pay each installment on time and in full; otherwise, the IRS can invalidate the arrangement.
Moreover, taxpayers that owe more than $50,000 and have no practical way of repaying that amount which they owe within six years will need the aid of a tax expert to help negotiate with the IRS for an installment compromise.
Many debt repayment programs involve revealing your monthly income and budgeted essential living expenses to the IRS. In short, they’ll claim the balance of your income minus expenses. You should keep in mind that even these payments come with fees. So, you will need to tender both Form 433-F and Form 9465 and do so either by mail or in person – you cannot resolve tax debt over $50,000 online. Let us review the debt repayment programs that help relieve taxpayers.
1. Installment Agreements
For tax debts equivalent to $50,000 or less, the IRS offers installment agreements without the need to tender financial documentation. Further, you can call the IRS to set up a monthly payment agreement, or you can contact a tax professional to assist you with the process and potentially reduce your amount due.
Taxpayers can set up flexible monthly payment plans, for up to 72 months. For debts over $50,000, the IRS still gives installment agreements but will request detailed financial documents. Furthermore, you’ll need to provide personal financial information such as your income and bank accounts, assets, and investments.
More importantly, remember that in order to set up any type of installment agreement, you must be up to date on all your taxes. This option is available to anyone, as long as you file for every year.
If you missed filing for any year, you would just have to do so first, and then go into an installment agreement for money owed.
2. Penalty Relief
Penalties and interest on taxes owed can add up really quick. If you don’t file or pay on time, these penalties keep adding up and can end up making up a huge portion of your debt owed. Through the Fresh Start Initiative, you may be qualified for the IRS to either lower or eliminate acquired tax penalties altogether. A late filing penalty is 5% of extra taxes owed for every month that that owed tax still isn’t paid. And 25% is the maximum that it will accumulate to. A late payment penalty is 0.5% of extra taxes that are owed for every month that the taxes remain unpaid. For a late payment penalty, the highest amount that penalties will accumulate to is also 25%. The interest rate for unpaid taxes is currently 5%, but it is subject to alterations. As long as you aren’t missing filed taxes for any year, have agreed upon some sort of a payment plan, and have no outstanding penalties for the 3 years prior to the most recent tax year, you should qualify for penalty relief.
3. Tax Liens
A tax lien is when the IRS can have the right to seize your assets for a debt owed. In short, they file a document with the government that informs the public you or your business have unpaid taxes. Particularly, the document upholds the government’s right to the money that is owed.
In regards to tax liens; this is different than a tax levy in that a levy is the process of IRS taking money directly out of one’s bank account or salary until a debt is paid.
Moreover, a tax lien can easily go to the credit bureau which can immediately have an adverse effect on credit.
In this circumstance, tax liens can be eliminated either by paying a debt or paying off part of a debt, with purpose and a payment plan to complete paying off the debt.
Bear in mind that irrespective how much you don’t want to deal with your debts; you should not underestimate the power of the IRS. If left unattended to for a long time, they can garnish your wages, seize your assets, close down your business, and tarnish your work relationships, amongst other things.
4. Offers in Compromise
An Offer in Compromise (OIC) is an agreement between the IRS and the taxpayer to agree on a reduced amount. The IRS utilizes the RCP (reasonable collection potential) to determine what the new amount owed will be.
To arrive at the RCP, the IRS may use personal financial information such as bank account and income information, car and other asset information, and properties.
Within the IRS offer in compromise, there are a lot of different payment options. They include:
▪ Lump Sum Cash Offer: A lump sum cash offer is when the taxpayer pays taxes owed within 5 months of an OIC being approved.
▪ Periodic Payment Offer: A periodic payment offer is when the taxpayer pays taxes owed in 6 or more monthly payments, within 12 months of the OIC being approved. Bear in mind that if you miss a payment or fail to hold up your end of the agreement, the IRS can revisit your case and you can, once again, be liable for the total amount owed.
When you receive a letter from the IRS notifying you of taxes owed, it can be disappointing. Though it may be tempting to ignore those letters for as long as you can, the most important thing you can do is communicate back to the IRS.
It’s a program that provides plethora of payment choices for those who owe and can’t afford to pay. In order to benefit from the program, taxes must be filed and up to date, without years of outstanding late fees and penalties. But life happens, and bills can be overwhelming. So if you do have outstanding late fees and a bill that you can’t pay, let us know.
For taxpayers who have shown that they are unable to pay their tax bill in full, the IRS gives a Fresh Start Offer in Compromise. This will need the aid of a professional tax preparation service, as negotiating with the IRS to pay less than the full amount owed can be tricky. Importantly, the taxpayer will show that paying the full amount of taxes owed will generate an overwhelming financial hardship. In these cases, the IRS may pardon a portion of the amount owed. Usually, you’ll have to agree to direct withdrawal of installment payments from a bank account.
Remarkably, it’s important to note that compromise arrangements with the IRS are not common, and generally need the assistance of a tax professional to achieve. If you are accepted make sure that you make each payment on time and in full; otherwise, the IRS can invalidate your compromise and you’ll be on the hook for the full amount owed. Several types of debt repayment programs are accessible, including a streamlined installment agreement, partial-pay installment agreements, and “stair-step” installment agreements. Remarkably, while these arrangements are available, each taxpayer must negotiate with the IRS directly to agree on their eligibility.
Debt repayment programs can offer great relief to taxpayers. In some circumstances, they can lessen their tax bill, or they may arrange to pay a certain amount on time, with the remainder forgiven after a series of on-time payments. In spite of which plan the IRS accepts, it’s essential to pay each installment on time and in full; otherwise, the IRS can invalidate the arrangement.
Moreover, taxpayers that owe more than $50,000 and have no practical way of repaying that amount which they owe within six years will need the aid of a tax expert to help negotiate with the IRS for an installment compromise.
Many debt repayment programs involve revealing your monthly income and budgeted essential living expenses to the IRS. In short, they’ll claim the balance of your income minus expenses. You should keep in mind that even these payments come with fees. So, you will need to tender both Form 433-F and Form 9465 and do so either by mail or in person – you cannot resolve tax debt over $50,000 online. Let us review the debt repayment programs that help relieve taxpayers.
1. Installment Agreements
For tax debts equivalent to $50,000 or less, the IRS offers installment agreements without the need to tender financial documentation. Further, you can call the IRS to set up a monthly payment agreement, or you can contact a tax professional to assist you with the process and potentially reduce your amount due.
Taxpayers can set up flexible monthly payment plans, for up to 72 months. For debts over $50,000, the IRS still gives installment agreements but will request detailed financial documents. Furthermore, you’ll need to provide personal financial information such as your income and bank accounts, assets, and investments.
More importantly, remember that in order to set up any type of installment agreement, you must be up to date on all your taxes. This option is available to anyone, as long as you file for every year.
If you missed filing for any year, you would just have to do so first, and then go into an installment agreement for money owed.
2. Penalty Relief
Penalties and interest on taxes owed can add up really quick. If you don’t file or pay on time, these penalties keep adding up and can end up making up a huge portion of your debt owed. Through the Fresh Start Initiative, you may be qualified for the IRS to either lower or eliminate acquired tax penalties altogether. A late filing penalty is 5% of extra taxes owed for every month that that owed tax still isn’t paid. And 25% is the maximum that it will accumulate to. A late payment penalty is 0.5% of extra taxes that are owed for every month that the taxes remain unpaid. For a late payment penalty, the highest amount that penalties will accumulate to is also 25%. The interest rate for unpaid taxes is currently 5%, but it is subject to alterations. As long as you aren’t missing filed taxes for any year, have agreed upon some sort of a payment plan, and have no outstanding penalties for the 3 years prior to the most recent tax year, you should qualify for penalty relief.
3. Tax Liens
A tax lien is when the IRS can have the right to seize your assets for a debt owed. In short, they file a document with the government that informs the public you or your business have unpaid taxes. Particularly, the document upholds the government’s right to the money that is owed.
In regards to tax liens; this is different than a tax levy in that a levy is the process of IRS taking money directly out of one’s bank account or salary until a debt is paid.
Moreover, a tax lien can easily go to the credit bureau which can immediately have an adverse effect on credit.
In this circumstance, tax liens can be eliminated either by paying a debt or paying off part of a debt, with purpose and a payment plan to complete paying off the debt.
Bear in mind that irrespective how much you don’t want to deal with your debts; you should not underestimate the power of the IRS. If left unattended to for a long time, they can garnish your wages, seize your assets, close down your business, and tarnish your work relationships, amongst other things.
4. Offers in Compromise
An Offer in Compromise (OIC) is an agreement between the IRS and the taxpayer to agree on a reduced amount. The IRS utilizes the RCP (reasonable collection potential) to determine what the new amount owed will be.
To arrive at the RCP, the IRS may use personal financial information such as bank account and income information, car and other asset information, and properties.
Within the IRS offer in compromise, there are a lot of different payment options. They include:
▪ Lump Sum Cash Offer: A lump sum cash offer is when the taxpayer pays taxes owed within 5 months of an OIC being approved.
▪ Periodic Payment Offer: A periodic payment offer is when the taxpayer pays taxes owed in 6 or more monthly payments, within 12 months of the OIC being approved. Bear in mind that if you miss a payment or fail to hold up your end of the agreement, the IRS can revisit your case and you can, once again, be liable for the total amount owed.
When you receive a letter from the IRS notifying you of taxes owed, it can be disappointing. Though it may be tempting to ignore those letters for as long as you can, the most important thing you can do is communicate back to the IRS.
It’s a program that provides plethora of payment choices for those who owe and can’t afford to pay. In order to benefit from the program, taxes must be filed and up to date, without years of outstanding late fees and penalties. But life happens, and bills can be overwhelming. So if you do have outstanding late fees and a bill that you can’t pay, let us know.
For taxpayers who have shown that they are unable to pay their tax bill in full, the IRS gives a Fresh Start Offer in Compromise. This will need the aid of a professional tax preparation service, as negotiating with the IRS to pay less than the full amount owed can be tricky. Importantly, the taxpayer will show that paying the full amount of taxes owed will generate an overwhelming financial hardship. In these cases, the IRS may pardon a portion of the amount owed. Usually, you’ll have to agree to direct withdrawal of installment payments from a bank account.
Remarkably, it’s important to note that compromise arrangements with the IRS are not common, and generally need the assistance of a tax professional to achieve. If you are accepted make sure that you make each payment on time and in full; otherwise, the IRS can invalidate your compromise and you’ll be on the hook for the full amount owed.