Before hiding your IRS letter about your $10,000 plus bill or simply paying, you can try to reduce your debt to a more manageable amount. There are several tax relief programs offered by the IRS for which you may qualify that can reduce your debt by a significant amount and may even leave you with a refund. Once you have completed the following five steps, you may just find your tax debt slashed.
Step 1: Check Your Tax Returns
The first step you should take whenever you receive a notice from the IRS about any amount due, whether a few hundred dollars or hundreds of thousands, is to look at your past tax returns. The IRS may have made a mistake, and it is your right to appeal the decision, including if the additional tax owed is the result from an audit. There is also the chance that you forgot to file your tax return for a particular year or years.
When this happens, the IRS files a substitute for return (SFR) for you after a period of time. This typically leads to a higher tax bill because the IRS does not have accurate income information and does not include any deductions or credits beyond the standard deduction. You can file a return to take the place of the SFR, which could result in you no longer owing any money or significantly reducing your debt. If that is the case, then there is no need to continue on to the subsequent steps.
Step 2: Look at the Contributing Factors of Your Bill
Many people who owe a significant tax bill find that a large portion is due to penalty fees and interest. If this is the case, then you can reduce your tax bill by simply applying for Penalty Abatement. However, you must be able to prove there was reasonable cause for being late in paying and/or filing your return. The IRS is pretty lenient as to what reasonable cause is, especially for first time late-filers and payers. However, this cannot be used if you simply wanted to avoid paying your taxes. There may be other contributing factors to your tax bill that could help you decide what to do in order to reduce it.
Step 3: Check to See if You Qualify for Special Tax Relief Programs
The IRS has several tax relief programs in place beyond Penalty Abatement, including Innocent Spouse Relief and Offer in Compromise. There are very specific qualifications in order to be approved for these. The Innocent Spouse Relief program removes all or part of the tax debt for spouses whose partner made an error on the tax return that resulted in the bill. As long as the spouse had no idea of the error, the fault was completely that of the other spouse, and it would be unfair to hold the individual accountable, then there is good chance of approval. Offer in Compromise is harder to obtain. In this situation, you negotiate a settlement for a price you can afford and the IRS forgives the rest of the debt. Although more people are being approved since the 2012 Fresh Start program, there is still just a 40 percent approval rating.
Step 4: Apply for Installment Agreements
If you look into the other programs and do not qualify for any of them, you can still save some money on your $10,000 plus tax bill by signing up for Installment Agreements. When you do this, any penalties for not filing end and for not paying are reduced to 0.25 percent. This saves you money in penalty charges over time. Furthermore, you can save money by choosing how much to pay every month to reduce your bill over time. Most agreement plans have a term of around five years. You can decide upon an amount that does not affect your financial situation so that you can become compliant with the IRS while not sacrificing anything.
Step 5: File the Paperwork
As with many programs, the final stage in reducing your tax debt is to file the appropriate paperwork. Which forms you need depends on which stage in the process you have decided is the right one for you. If you want to refile your taxes, then you need to find the tax forms for the year or years for which you did not file. To appeal a decision or apply for a specialty tax relief program, you will need to file the appropriate forms, such as Form 843 for Penalty Abatement, 656 for Offer in Compromise, or 8857 for Innocent Spouse Relief.
When you owe a significant amount of money to the IRS, it can be hard to find the capital to pay it off. Before you sell any assets or just pony up the 10K or more, see if you can reduce your debt while still becoming compliant to the IRS. If you do not want to deal with the hassle of applying to tax relief programs at the IRS, let the tax relief professionals at Fidelity Tax Relief do it for you. They have years of experience in negotiating with the IRS and will help you through these steps and find the right path for you. Call us now at 714-500-7369 to speak with a live Tax Resolution Expert