Tax relief is basically about setting up a payment plan or negotiating a settlement with the IRS. It’s not about eliminating your tax obligation. Rather, it’s about easing the burden of the tax debt you owe the IRS.
Individuals who are victims of natural disasters, such as hurricanes and wildfires, are occasionally granted special tax relief as well. Disaster victims may meet the requirements for deadline extensions and may be qualified to claim casualty losses on their federal income tax returns.
Ways to Get Tax Relief
There are methods to put into consideration when dealing with strategies for managing taxes you can’t afford to pay in full when they’re due, you have several options. Below are four methods to consider:
- IRS Repayment Plan
The IRS may let you to break down your full balance into part payments. In order to qualify for a long-term payment plan (paying over 120 days or more), your debt has to be $50,000 or less in combined taxes, penalties and interest. For a short-term payment plan of 120 days or less, your tax bill can be as much as $100,000. Although IRS payment plans can be of aid if you don’t have the financial means to cover your tax bill in full, they come with a cost. Based on the choice you opt for, you may pay a setup fee of up to $149 plus penalties and interest until your balance is fully paid.
● Offer in Compromise
If you’re having difficulty in paying your full tax bill, the IRS might offer you the chance to settle your tax debt for less than you owe through what is known as an offer in compromise. According to the IRS, an offer in compromise “may be a legitimate option if you can’t pay your full tax liability, or doing so creates a financial hardship. “When reassessing your application for an offer in compromise, the IRS will consider factors such as:
✔ Your ability to pay
✔ Your income
✔ Your expenses
✔ Your assets
- Penalty Relief or Interest Abatement
There’s a possibility you may qualify for penalty relief from the IRS. This implies that the IRS forgives the penalties you’ve been charged on your tax bill if you meet certain requirements, such as not having any penalties for the past three tax years or paying or arranging payment for any taxes owed. You will still owe your taxes even if you meet the requirements, but your total debt will be lower once the penalties are removed from your outstanding balance. Interest abatement, or forgiveness on the interest you owe toward unpaid taxes, may be available as well, but it’s unusual.
- Personal Loan
Taking out a personal loan is another option to consider if you don’t have the funds available to pay your tax bill. Confirm whether you can get a personal loan for less than an IRS payment plan offer before going this option. If you choose to use a personal loan to pay for your tax obligation, research loan rates and terms and ensure you’re getting the best rate available. It can also be helpful to check your credit reports before you apply to know what lenders will see when they scrutinize your application.
● Tax Relief Companies
Tax relief companies regularly make use of the internet, radio and television to promote their services to striving taxpayers. Essentially, tax relief companies work by serving as a link between individuals with the IRS for a fee. That fee can reach into the thousands of dollars, without any guarantee that they’ll be any more successful than you’d be if you negotiated with the IRS yourself.
If you seek the assistance of a high profiled tax relief company to work on your behalf, they may get in touch with the IRS to try to negotiate an offer in compromise, installment agreement, or penalty or interest abatement.
If you prefer to have a third party represent you, ensure you get a reputable and qualified tax professional. The Federal Trade Commission (FTC) warns that only certain tax professionals have the authority to represent you with the IRS. These include:
✔ Enrolled agents (federally authorized tax practitioners who can represent taxpayers before the IRS)
✔ Certified Public Accountants (CPAs)
✔ Attorneys
When hiring a third party to represent you, watch out for high upfront fees, harsh refund policies, and default billing rates that kick in if you decide to cancel.
In Addition, the FTC advises that you meet in person with any tax professional you’re considering hiring. Ask them to clearly explain your options as a taxpayer and the company’s fee structure in detail before you pay anything or sign an agreement.
● Preventing Tax Identity Theft
Furthermore to taking care of your outstanding tax obligations, it’s also important that you be on watchful for any signs of tax-related identity theft. You may be at risk if you’ve ever misplaced your wallet, had your mail stolen, or had personal information compromised in a data breach.
To help keep your identity safe at tax time, here are a few best practices to follow:
✔ Keep your Social Security card and any documents containing your Social Security number safely; it’s better not to carry these documents around with you.
✔ Don’t give out your personal information, such as Social Security number, date of birth and others, over the phone or online unless you first made the contact and you know you’re communicating with a reputable organization.
✔ Consider requesting an Identity Protection Pin from the IRS, if you’re qualified.
How Do Unpaid Taxes Affect My Credit?
You may be worried about the tax bill you owe the federal government hurting your credit scores. The good news is you should not be. Tax liens are now exempted from your credit reports. This means they will not have an influence upon your Score.
You should be cautious, however, that just because tax liens are missing from your reports doesn’t imply they can’t give you problems when you apply for a loan or other types of financing. Some lenders may go through public records reports, and your unpaid tax liens could show up there. Also, if your tax payments affect the rest of your financial picture and cause you to get behind on other bills, your credit scores could be affected.
The Importance of Being Proactive
Trying to conceal from your tax bill won’t help you. In fact, as interest and fees continue to accumulate, you’ll only make your tax problem worse by trying to disregard it.
Be proactive, file your taxes, and contact the IRS to see which options you have available. You can hire a reputable tax professional if you feel overwhelmed, but also know you have the right to reach out to the IRS without the aid of a tax representative.