Paying taxes is a difficult burden for anyone, but there are some years it’s worse. Life happens, and you may suddenly find yourself facing down tens of thousands of dollars in debt. If you’re looking at your finances and thinking there’s no way you can pay all that money, don’t give up hope yet.
Tax debt relief programs can help make paying off your taxes more manageable. You may be able to get forgiveness for some of your debt, or you might be able to work out a payment plan for the rest. Read on to learn more about tax debt forgiveness and how it can keep you out of financial ruin.
What Is Debt Forgiveness?
If you owe thousands of dollars in taxes, all hope isn’t lost. The IRS understands that life happens, and they have a debt forgiveness program for people in specific financial situations. Effectively, the IRS can’t legally collect more than you can reasonably afford to pay.
In general, the rule for qualifying for debt forgiveness is that the IRS cannot collect an amount of money that would force you into a financial disaster. They may instead choose to write off that debt. There are a number of programs that you can get debt forgiveness through, and we’ll discuss them in a moment.
How Does It Work?
When you apply for debt forgiveness, the IRS will evaluate your financial situation to determine what you can and can’t afford to pay in taxes. They’re only going to take the bare necessities into account when they’re performing this evaluation. So something like having to pull your child out of private school or not being able to afford new clothes for the next year won’t impact your tax forgiveness.
But the IRS will take into account whether the tax payment you owe will cause you to go bankrupt. They’ll also consider whether you’ll have to default on a loan or lose a home or business in order to pay. So if you’re under evaluation for debt forgiveness, it’s important to be completely open with the IRS about the financial responsibilities you have.
Fresh Start Initiative
One of the IRS’s debt forgiveness programs is the Fresh Start Initiative. The IRS has recently expanded this initiative to make it easier than ever for taxpayers to take advantage of it when needed. In part, it does this by making it easier for the IRS to judge your paying ability without you having to disclose huge amounts of financial information to them.
Instead of looking at five years of future income to determine what your reasonable collection potential will be, the IRS now only looks one or two years ahead. You can make your student loans’ minimum payment guaranteed by the federal government. And the Allowable Living Expense standards used to determine how much money you need each month has expanded to include credit card payments and bank fees.
Offer in Compromise
If you can afford to pay some, but not all, of your tax debt, the Offer in Compromise program may work for you. This is a government payment plan that significantly reduces the total amount you’re able to pay. You can then pay the reduced amount off in a lump sum or in fixed monthly payments.
It isn’t easy to qualify for Offer in Compromise, however. You must have filed all your tax returns and have made some required estimated tax payments. You must also not currently be in an open bankruptcy proceeding, have submitted all tax deposits for any businesses you own and be unable to pay your tax debt in a lump sum or through an installment agreement.
Alternate Collection Actions
If you don’t qualify for either of these programs, the IRS may also use alternate collection actions. It’s important that you keep an eye out for those because they might happen without your realizing it. These might be as benign as a notice in the mail or as aggressive as a debt collector tracking you down.
The government might use a tax lien to secure a claim against your property if you don’t pay your debt. They might seize this property as a way to pay your debt if you don’t get it taken care of. Or they might start garnishing your wages to settle your existing tax debt.
Know What You Owe
The first step to figuring out whether you should apply for debt forgiveness is to figure out exactly what you owe. If you’re going to ask for forgiveness, you’re going to need to know that figure and be able to prove that you can’t reasonably pay it. Start figuring out how much you owe by getting in touch with the IRS directly.
The IRS has a new portal that makes it easy to see how much you owe in taxes. You can mail in a form if you aren’t comfortable with computers, and they’ll let you know what your debt is. Or you could get a tax professional to help you find the specific amount you owe.
Get the Help You Need
It’s a good idea, in general, to get help from a tax professional. Navigating the tax code is tricky under the best of circumstances, and looking at debt forgiveness doesn’t make it any easier. You need someone on your side who knows the system and can help you navigate it.
A tax professional can help you gather the documents you need to prove you can’t reasonably pay your debt. They may also be able to highlight other financial responsibilities you may not have realized would qualify for the forgiveness standards. When you have a professional on your side, you can rest easy knowing you’ve gotten the best financial help possible.
Learn How to Get Tax Debt Relief
When you’re facing down a huge amount of tax debt, knowing that there are options out there can help. Tax debt relief programs aren’t easy to qualify for, but they can be crucial for those who find themselves in dire straits. Talk to a tax professional and start the process of getting your debt forgiven, or a payment arrangement worked out.
If you’d like to get the best help with your taxes, check out the rest of our site at Fidelity Tax Relief. We can help you stop IRS wage garnishments and apply for the relief you need. Contact us today and get help getting your debt forgiven and your finances back on track.