Owing more than $10,000 in debt can lead to severe consequences. You may face wage garnishment, levies, or liens, all of which put you into a severe financial crisis. Although the easiest way to get out of it is to simply pay your debt, this is hard for most people owing such a large sum. Luckily, you may find that you can significantly reduce the amount you owe by trying one of the following five IRS tax relief programs.
File Your Back Tax Returns
Many taxpayers end up with such a large tax bill because they forget to or voluntarily choose not to file their tax return. After a period of time, the IRS will file for the taxpayer using what is known as a substitute for return (SFR). When they do this, the IRS completes the return using the information they have on file, including income from W2s and 1099s reported from employers. They only give the standard deduction and the taxpayer gets no credits. This typically gives the taxpayer a much higher tax liability than they really have.
You can file a return in place of the SFR and include more exact income details, deductions, and credits. This most likely reduces your tax debt, and some people even find out they ultimately have a refund rather than owe money. Even if you do not save a significant amount of money, it may still reduce your overall debt by reducing your penalty fees. The penalty charge for late filing is 5 percent per month up to 25 percent of your tax. Once you file, you will no longer incur late-filing penalties, and any reduction to your tax liability will also reduce the amount of the penalty fees.
Offer in Compromise
An Offer in Compromise is a special program in place that basically allows you to negotiate a settlement. The taxpayer suggests an amount he or she can reasonably pay, and if the IRS accepts, they forgive the rest of the debt. There are strict guidelines in place and this is one of the hardest tax relief options for approval. However, since the 2012 Fresh Start program, the number of approved Offer in Compromises has increased to around 40 percent due to relaxed guidelines that gives more people a chance to benefit from the program.
Penalty Abatement
The penalty and interest charges often change a reasonable amount of money owed to the IRS into something completely unaffordable. The IRS can add up to 47.5 percent of your tax to your bill for penalty charges alone, which includes up to 25 percent for late payment charges and 22.5 percent for late filing. If you have reasonable cause for filing and/or paying late, you can apply to have all or some of the penalty charges removed. This does not apply to the interest, but it will still help to greatly reduce your debt.
Innocent Spouse Relief
If your current or former spouse filed an erroneous tax return that led to you owing a significant amount of money, then you may qualify for Innocent Spouse Relief. To qualify, you must have no knowledge of the error, the fault was completely that of your spouse, and it would be unfair to hold you responsible. If you can prove all three of these, then you can get all or some of the tax debt removed.
Installment Agreement
An Installment Agreement does not actively reduce the amount of debt you owe, but it does help you to save money compared to continuing to not act. When you sign up for an Installment Agreement, the IRS will not take any collective action as long as your remain active. Furthermore, the penalty charges are at .25 percent rather than .5 percent, which helps to save you money over time. You also can choose a monthly payment that you can afford so that you can slowly pay off your debt without having to sell your assets or change your lifestyle. This saves you money upfront and may even save you money every month, especially compared to what the IRS would take through wage garnishment or other collective action.
The IRS tax relief programs can help you to reduce your tax debt and no longer fear the IRS. However, it can be a hassle and pain to work with the IRS. Instead, you can have expert tax professionals work on your behalf. This not only takes the stress and burden off of you, but it also increases your chance of a favorable outcome. Contact Fidelity Tax Relief at 714-500-7369 to work with some of the top industry professionals who will investigate your situation and help you to find the right solution for you.
