If you’re unable to pay your tax debt, it’s important that you still file on time, or ask for an extension to file. Those who cannot pay at least 90% of their tax debt by the original deadline will typically be subject to penalties.
The longer it takes you to file and pay, the more penalties you’ll accrue—but how are you supposed to pay off a bill that continues to rise? There are a few ways to avoid excessive penalties. An Advance Tax Relief expert can help you explore one of the following solutions:
Pay with a credit card: If you don’t have the money to pay for your tax debt currently, you can choose to put in on a credit card. At its core, this is essentially trading one debt for another, but choosing the right credit company could help you pay less in the long run, as you can likely qualify for an interest rate that costs less than the penalties the IRS will enforce.
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Offer in Compromise: If it’s apparent that you’ll never be able to pay your total tax debt, the IRS may agree to an Offer in Compromise (OIC). This solution requires the taxpayer to come up with a new balance; if the IRS agrees to this offer, the remainder of your balance (anything more than the new number you’ve agreed upon) is forgiven.
In order to qualify for an Offer in Compromise, you must continue to make payments on your debt while the IRS considers your request. If not, the OIC will be denied. You can apply for an OIC with Form 656-B, which comes with a $186 application fee (if your income is below the specified poverty level, this application fee may be waived).
You’ll also be required to detail important financial information using one of two types of Collection Information Statement: Form 433-A (for individuals) or Form 433-B (for businesses). If you’re currently married and live in a community property state, you may be required to provide detailed data on your spouse. The information flow doesn’t stop at these forms. The IRS will also take a deep look into your financial records, including vehicle registrations, bank records, pay stubs, and anything else they may deem important for their decision-making process. It’s not uncommon for taxpayers to submit stacks upon stacks of paperwork for IRS review, and you may need to dig through scores of past financial statements—not unlike preparing for an IRS audit.
The IRS uses this information in order to determine your reasonable collection potential. The offer you make must equal the net realizable value of your assets along with your excess monthly income (the amount left over after your monthly necessary expenses are subtracted from your monthly total income).
Keep in mind that what the IRS deems as a “necessary expense” could be much different than your definition. If you don’t receive approval, this paperwork gives the IRS all it needs to come after you quickly for collection after the negotiation process has ceased. It’s also important to keep in mind that interest continues to accrue during the negotiation; if your request is denied, you’ll end up owing more than you did previously. These potential consequences make it crucial for you to create and submit a realistic offer in compromise request that is likely to be approved.
There are typically three instances in which the IRS will approve an OIC request:
When there is reasonable doubt that the tax debt owed is incorrect
When there is doubt you could ever hope to pay off your debt in full
When paying the total amount due would cause undue financial hardship
It’s difficult to get approval for an Offer in Compromise, and it’s important to work with a qualified tax professional to create a realistic solution that works for both you and the government agency. Contact the professionals at Community Tax to discover the ways we may be able to effectively submit an OIC that can settle your outstanding tax balance.
Installment Agreements: If you can’t currently pay off your tax debt in full and would like to receive more time, the IRS may approve your request for an installment agreement.
You can apply for one of these agreements with Form 9465 Installment Agreement Request, which is used to ask the IRS for a monthly payment plan that will allow you to pay off what you owe in a pre-specified amount of time. To qualify, your total tax debt must be less than $50,000, and you must be able to pay off your balance within 72 months. This is most often used when paying old tax debt but could be useful in failure-to-file situations that have caused your total balance to skyrocket due to penalties and interest. However, therein lies the stipulation: the IRS will not accept an Installment Agreement Request if you’re not up to date on all current tax filings, so submitting your tax return is the first step. While the IRS assesses your application, you must make the payments as set out in your request and you must file all taxes on time in the future; if you fail to do so, the installment agreement can be revoked and the IRS can come after you for the original tax debt owed. We have a team of dedicated experts skilled in negotiating installment agreements with the government.
We can guarantee that your tax filing status is up to date and create a plan with provisions that suit your financial needs while appeasing the IRS to help you avoid further penalties and costs.
Filing for Bankruptcy: This is typically a last-ditch effort for taxpayers in difficult financial straits and should only be considered as a last resort.
Only certain tax debts can be wiped out. If the following conditions are true of your tax debt, you may be able to discharge your debt with Chapter 7 Bankruptcy filing. Always speak to a tax professional or accountant before filing for bankruptcy. This action can have lasting ramifications and it’s important to consider all available routes before deciding on bankruptcy.
Here are some considerations to bear in mind:
It’s been 240 days: The IRS must have assessed your income tax debt 240 days before you file a petition for bankruptcy. However, this time limit can be extended if the IRS suspended collections due to installment agreements, currently uncollectible status, or Offer in Compromise filings. In some cases, you may be able to file for bankruptcy if the IRS has yet to assess your debt.
Your debt is three years old: You can only discharge tax debt through bankruptcy if your tax return was due at least three years prior.
You’ve filed your tax return: You must file a tax return for the debt you wish to discharge at least two years before filing for bankruptcy. As you can see, the penalties for filing taxes late are long-spanning and could affect your financial options for years.
You didn’t commit fraud or evasion: If you filed a fraudulent return or you attempted to avoid paying your taxes, you cannot file for bankruptcy.
Your tax debt is income taxes: Any other taxes—like fraud penalties or payroll taxes—can’t be solved with bankruptcy.
If you’re unsure which of these solutions best suits your needs, contact the team of tax resolution specialists at Advance Tax Relief. We’re well versed in IRS negotiations, and can help you create a plan to settle your debt and make your necessary payments in the quickest time frame possible.
If you are facing wage garnishment, call today (713)300-3965 for a free consultation!
Seeking professional help when handling back taxes can help you avoid the discussed errors. At Advance Tax Relief, we offer specialized tax resolution services to help you deal with IRS debt.
Our experts can help rectify erroneous tax bills and guide you in picking a suitable repayment program. Contact us today (713)300-3965 for back tax filing and tax relief services.
Advance Tax Relief is rated one of the best tax relief companies nationwide.
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