How Tax Relief Works – What You Need to Know!August 23, 2023
Tax relief can really help you when you have a huge tax debt you can’t pay in full at once. How does it work? Learn more here.
Do you have a tax debt for this year? You are not alone as there is a huge percentage of taxpayers that their withheld taxes cannot cover their total tax bills. If your tax debt is huge and you don’t have enough money to pay it, you can find yourself in a very difficult situation. The tax authority can impose a penalty or fine on your tax bill and that will make your tax debt grow bigger. The only solution you have is to consider tax relief. How does it work? Here is all you need to know.
What is tax relief?
Tax relief is simply negotiating with the IRS for a perfect payment plan or settlement for your tax debt. Many people think that it is about erasing the tax debt, but it is a process of making it easier for you to take care of your tax obligations. However, in some instances it can help lower the tax debts or even have the tax debt forgiven when you meet certain set out terms and conditions.
How does tax relief work?
If you can’t afford to pay your taxes in full when they are due, you have several relief options. Here are 3 methods to consider;
Offer in compromise
If you can’t manage to pay your tax bill in full because of financial challenges, the IRS might lower your tax bill through offer in compromise. However, before the IRS lowers what you owe, they must review your expenses, ability to pay, your assets and your income. That way, they will have a clear picture of your income and then make a fair decision based on the facts.
IRS repayment plan
The IRS is a fair institution that knows at times you can’t pay what you owe in full at once. For that reason, the tax agency allows you to file an installment payment plan to clear your debt. You can consider a short or long-term payment plan. You just need to negotiate for a perfect payment plan that will not put you under financial pressure. If you file for repayment plan early enough, you might not pay heavy fines or interest.
Interest abatements or penalty relief
The IRS sets out criteria on which you can get a penalty relief. For instance, if you filed a repayment plan early or you haven’t been fined in the last three tax years for not paying your tax bill, you can get a penalty relief. Also, although rare, you can get forgiveness on the interest you owe for unpaid tax bill. With a good tax attorney on your side, you can negotiate for interest abatement.
Can you get IRS debt forgiven?
Yes, the IRS can forgive your tax debt if you can’t pay and when collection action would force you into a financial crisis. Also, in some situations, the IRS can partially forgive your debt; meaning you will have a reduced tax debt that you can comfortably pay. A decision will be made, based on your current financial situation.
Can you negotiate for an installment payment plan on your own?
Yes, you can. However, it is highly advisable to hire a tax attorney or certified public accountant to negotiate a repayment plan with the IRS on your behalf. A tax professional will represent you in the best way possible and get you a perfect repayment plan, and get IRS off your back.
At one time or the other, you can find yourself having a huge tax liability that you can’t pay in full at once. When that time comes, consider tax relief options like offer in compromise, installment payment plans and others. That way, you will have an easy time to pay your tax bill or your tax bill will be forgiven by the tax authority.