With the Thanksgiving holiday come and gone, the holiday season is in full force. With the expenses of presents, travel, parties, and festive food, the holidays are well known for being a costly time of year. When you already are drowning in federal tax debt, it can be hard to fully enjoy the holidays, especially if you are at risk of losing your house or car.
Rather than stressing about how you will pay for your holiday gifts and your taxes, get rid of your tax debt today through one of the following ways. Then, you can fully enjoy the holiday season and start the New Year fresh.
File Your Back Taxes
Does your federal tax debt stem from income tax for which you never filed a return? Then one of the easiest ways to remove or lower your tax debt is to file your back taxes. When you are supposed to file a return and did not, the IRS files what is known as a Substitute for Return. To do this, the IRS uses the income information they have on file from your employers and give you the standard deduction. They do not take the time to consider any potential credits or deductions for which you might qualify. In many cases, this leads to a tax liability much higher than it should be.
When you file your tax return instead, you can include any exemptions, credits, and deductions for which you qualify — as long as you still have any documentation required. This has the potential to save you a lot of money. In fact, many people find that instead of owing money, they actually are due a refund. Just remember, there is a deadline for refunds. After three years, you are no longer entitled to your refund; instead, the money goes to the federal treasury. However, you can still see if you can save money by filing the old returns for which the IRS filed an SFR.
Use a Credit Card or Personal Loan
During the holidays, you might find that you are racking up a lot of debt on your credit cards as it is. However, this might also be a solution for getting rid of the burden of your tax debt, depending on how much you owe. In some situations, the interest and fees affiliated with a credit card or personal loan are much lower than if you just let your federal tax debt remain as it is. It also allows you to find a payoff schedule that works within your budget. You can also stop a lien or levy if you pay off your debt, so you no longer have to worry about losing your house, car, or other property.
Just remember that if you use this option, you must keep up with the payment terms of your credit card or loan agreement or you will once again face collective action. This is also an option that works best for those who owe under $10,000 in federal tax debt.
Set Up an Installment Agreement
If you owe a significant amount of tax debt, have poor credit, or wish to keep your federal tax debt off of your consumer credit report, then setting up an Installment Agreement with the IRS is the perfect option. As soon as you sign up for an Installment Agreement, any collective action against you, such as a wage garnishment, lien, or levy go away. You will still face interest and penalty fees that add to your original tax debt. Interest will be the federal short-term rate plus 3 percent compounded daily, and the penalty fees are 0.25 percent of the tax per month or partial month. Depending on your situation, this might be lower or higher than what your interest and other fees would be if you took out a personal line of credit.
In order to avoid worrying about losing your house or car, you must remain compliant with your Installment Agreement. If you miss a payment, then the IRS might begin collective action. Any future tax bills also need to be filed and paid on time. You might be able to renegotiate your Installment Agreement if needed.
Negotiate an Offer in Compromise
For some taxpayers, the best solution to get rid of their federal tax debt is known as an Offer in Compromise. This tax relief option allows you to pay just a percentage of your tax debt, and the IRS forgives the rest. It is very difficult to qualify for this, with only around 40 percent of taxpayers who apply for it accepted.
Generally, you must have all your tax returns filed and cannot currently be in proceedings for bankruptcy. They review applications on a case-by-case basis. You must demonstrate that you cannot pay your full tax liability or that doing so would put you into severe financial hardship. The IRS must also believe that you will not be able to pay in the near future, either.
They base their decision on your income, expenses, equity in your assets, and your ability to pay. The deal must make sense to both parties for it to work. You also must follow through with the terms of the deal, or you will be liable for your full tax bill plus any interest and penalty fees.
Apply for Penalty Abatement
One way to save some money off your tax bill is to apply for Penalty Abatement. This removes the penalty fees added to your original tax liability, although it does not remove any interest. This can make a huge difference in your ability to pay, since your penalty fees could be as much as 47.5 percent of your total tax. If it is your first time late filing and/or late paying, then you have a good chance at a successful application for Penalty Abatement.
Find Out If You Are Eligible For Another Tax Relief Option
In addition to the above, there are a few other tax debt settlement programs through the IRS, including Innocent Spouse Relief and Currently Not Collectible. If you find yourself drowning in debt and struggling to pay over this holiday period, now is the time to find out which solution works best for you. Working with a tax professional provides the support and expertise to guide you to the right way to get rid of your tax debt. Once you have begun the process, then you can once again fully enjoy the holiday period without the stress of your tax debt or the looming loss of your house or car. In some situations, you might find you have a refund to help you pay for the expenses of the holiday season.
Contact Fidelity Tax Relief today to learn more about the federal tax relief options available to you. Our tax professionals will go through your situation and determine the best solution for you. We will handle all the paperwork for you and contact the IRS on your behalf. Once you hire us, we do all the work for you so that you can spend your energy on other things, such as enjoying the holiday season.