An American in tax debt to the IRS owes an average of nearly $52,000!
And that can have a huge impact on their life. Of course, there’s ongoing, terrifying levels of stress.
But tax debt can keep American’s from making progress in their financial lives. It holds them back from buying homes, starting a business, or pursuing their education.
So when you’re drowning in tax debt, here are six ways you can find relief.
1. Fresh Start Initiative
The Fresh Start Initiative is a series of programs and tactics that can help relieve your tax burden. It originally launched back in 2011 but was expanded in 2012.
The expansions did a lot to make more American’s eligible for the Fresh Start Initiative. It also made terms easier.
For example, it raised the threshold of eligibility from owing less than $25,000, to owing less than $50,000. It also pushed out payment plans from five years to six years. This made payments smaller and thus more affordable.
The Fresh Start Initiative isn’t designed for high-income earners. To be eligible, you must make less than $100,000 as a single person or less than $200,000 as a couple filing jointly.
We’ll go into more depth about some specific initiatives later. Look for the Installment Agreement or the Offer in Compromise to learn more.
Other tactics include getting rid of liens or removing wage garnishments. They also now allow a taxpayer to file for a Currently Not Collectible status.
Taxpayers who cannot pay their taxes can file for a Currently Not Collectible status. They must prove that paying their taxes will cause undue hardship. Paying their taxes would make it hard or impossible to pay for necessities, like food and shelter.
Currently Not Collectible status will keep the IRS from pursuing collection tactics. This can prevent tactics like liens and wage garnishments.
But it does not keep the balance from accruing penalties and interest. Even still, it can be a saving tactic for individuals who are struggling.
Depending on your particular tax situation, mixing up these tactics might be helpful.
2. Installment Agreement
An installment agreement is a part of the Fresh Start Initiative. With it, the IRS allows taxpayers with less than $50,000 in debt to make payments on an installment agreement.
Instead of paying your debt in full, you’ll pay smaller monthly increments until the debt is paid off in full.
There is a fee, ranging from $37 to $120 to set up an installment agreement. This fee can be waived for those struggling financially.
Your debt will still gain interest and fees, and you must pay the entire balance off in full in 72 months (six years).
It’s vital to never miss or default on a payment. Doing so would invalidate the installment agreement. As a result, the IRS could start full collection practices again. So make sure you always have enough money in your account to cover your bill every month.
Still, this will prevent liens and wage garnishments. And you can always pay more than the required balance each month.
3. Offer in Compromise
An offer in compromise is a rare and amazing thing. If a taxpayer cannot pay the full tax debt amount, they may be eligible for an offer in compromise. But they must be able to prove that paying the debt would impose an undue hardship.
The IRS typically only accepts an Offer in Compromise if they think it’s the easiest way to get the most money. If your offer is bigger than what they think they can get, they’re more likely to accept.
You may be eligible for an OIC if you meet the three following factors.
The IRS Doesn’t Think it can Get Its Money
If you don’t make much, and it doesn’t look likely to change, the IRS will be more likely to consider an OIC. They doubt they’ll be able to receive the full balance.
You May Not Be Liable
Was there was an issue in your taxes? Is the tax debt the fault of a spouse? Are there other liability issues that make you not at fault?
If so you might not owe that much, and the IRS may consider an OIC.
If Paying the Debt Causes Undue Hardship
Like we talked about if paying your debt means you can’t pay rent or buy food, the IRS is more likely to accept an OIC.
Since OICs allow you to pay off your debt for a fraction of the cost, they’re hard to come by. If you plan on following this route, talk to a professional. They can improve your chances of success.
4. Ask for a Deferment
If you can prove that paying off the full debt would impose an undue hardship, you may be able to apply for a deferment.
This will postpone how long you have until you need to pay your tax debt. Even still, it will continue to gain interest and fees. The hope is that down the line you’ll be in a better financial position and you’ll be able to pay the debt in full.
5. 10-Year Statute of Limitations
Keep in mind tax debt has a 10-year statute of limitations. You can file for an uncollectible status or tax deferments until the statute expires.
You need to be careful since some actions can reset this statute.
6. Talk to a Tax Professional
When in doubt, talk to a tax professional. Taxes are deliberately confusing to keep people like them in work. As a result, they’re the best in the industry to help you handle your tax problems.
Here are a few tips to help you pick a company to work through these tax relief options.
Tax Debt Doesn’t Have to Hold You Back
These are a few tactics to help you get rid of your tax debt. Apply for an installment agreement or an offer in compromise. If it’s already been a while, maybe you can let the statute of limitations expire.
But when in doubt, call a tax professional. They can help you find the best solution.
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