Tax Debt Relief: Best Ways to Handle Back Taxes in 2024

As an adult, there are specific responsibilities that you can't avoid, such as doing household chores, scheduling doctor's appointments, and taking out the trash. And, of course, paying taxes falls into that category of things you must do.

If you stay caught up on your tax payments, the IRS will soon pressure you to settle your debt. Trust me when I say it's not a pleasant experience. Dealing with tax debt is never enjoyable. However, when faced with relentless demands from the government to pay up, it's essential to remain calm and collected. 

While it may not be easy, there are ways for you to regain control over your financial situation and alleviate the pressure from the IRS. This article will explore various options for tax debt relief and help determine the most suitable for your specific circumstances.

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What Is Tax Relief?

Within the realm of taxes, the term "tax relief" encompasses various aspects. In terms of policy, tax relief refers to any measure, provision, or incentive that assists taxpayers in legally reducing their tax liabilities. This can include well-known benefits such as tax credits, deductions, and even stimulus checks or rebates.

The IRS commonly utilizes the term "tax relief" when discussing extensions for taxpayers residing in federally declared disaster areas or those affected by specific events like hurricanes or floods.

Individuals impacted by these circumstances may also be eligible to deduct certain personal property losses not covered by insurance or other reimbursement forms. The IRS maintains a comprehensive list outlining the situations for which it provides tax relief assistance.

5 Common Tax Relief Options

1. IRS Payment or Installment Plans

If you require additional time to settle your tax bill, assessing your eligibility for an IRS payment plan or installment agreement is advisable. By opting for a payment plan, you can repay your outstanding tax bill (including accrued interest and fees) over a specific duration. The IRS offers two types of installment plans: short-term and long-term.

Here are some essential points to consider when seeking tax relief through an IRS payment plan:

A payment plan doesn’t exempt you from incurring interest and penalties on late payments. These charges continue until your balance reaches zero. For individuals with tax debts exceeding $25,000, it’s mandatory to make payments via automatic bank account withdrawal.

A processing fee will apply if you make payments using a debit card, credit card, or digital wallet. Debit cards incur charges ranging from approximately $2 to $2.50 per transaction; credit cards necessitate paying around 2% of the total payment amount. However, applicants with lower incomes may qualify for waived setup fees.

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2. Offer in Compromise

If you're looking for a way to ease your tax burden, an alternative called an "offer in compromise" might be worth considering. 

This allows you to settle your outstanding taxes with the IRS for a reduced amount. According to the IRS, this option is available if you cannot pay your tax debt or if it would cause significant financial hardship.

However, obtaining approval for an offer in compromise from the IRS can be challenging compared to setting up a payment plan. The IRS only grants acceptance on less than half of their requests. Therefore, before considering an offer of compromise, it's advisable to explore other alternatives first.

To determine whether you qualify for tax relief through an offer in compromise, the IRS considers various factors such as your ability to pay, income and expenses, and assets held.

Here are some key points worth knowing about pursuing tax relief via an offer in compromise:

• A nonrefundable $205 fee applies (with a waiver available for low-income taxpayers)
• An initial payment, also nonrefundable, is required
• Being current on all tax returns is a prerequisite
• The IRS may file or retain tax liens until your offer is accepted and obligations are met
• Ineligibility during an ongoing bankruptcy proceeding
• While hiring a qualified tax professional is optional, it can assist in navigating the paperwork
• Collection activities by the IRS are suspended upon filing your application

3. "Currently-Not-Collectible" Status

If you cannot afford your taxes and necessary living expenses, you can request the IRS to place your account in a state known as "currently-not-collectible" status. This allows for a delay in collection efforts. 

The IRS may require you to fill out either a Collection Information Statement or a Collection Information Statement for Wage Earners and Self-Employed Individuals form to confirm the current state of your finances. You’ll be asked to provide details regarding your monthly income and expenses on this form.

When applying for CNC status, keep in mind the following information:

• It's a temporary status, the IRS may annually review your income to assess any improvement in your financial situation
• "Currently not collectible" status doesn't eliminate your tax debt
• The IRS retains the authority to file a tax lien against you

4. Penalty Abatement

If you face an IRS penalty for failing to file or pay, despite having a clean record otherwise, there’s a potential solution called "first-time penalty abatement." This option allows you to request the penalty reversal and any associated interest.

Specific criteria must be met to be eligible for this form of relief. These include filing your current tax return (or requesting an extension), paying your past taxes (or being enrolled in a payment plan), and not receiving any penalties from the IRS in the past three years.

The IRS offers penalty relief based on reasonable cause. This can assist individuals unable to meet their filing deadline due to extenuating circumstances such as serious illness, family loss, or natural disasters like fire. To qualify for this relief, it’s necessary to provide supporting evidence and documentation such as hospital records or court documents.

By understanding these options and meeting the requirements, individuals can seek relief from penalties imposed by the IRS. Considering each circumstance carefully and gathering appropriate documentation when applying for first-time penalty abatement or reasonable cause relief is important.

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5. Hiring a Tax-Relief Company

Tax relief companies are known for their assistance to taxpayers who find themselves in difficult situations. 

While some of these companies can genuinely provide guidance and support, especially if you need clarification on the procedures or require assistance with form completion, be cautious of offers that appear too good to be true. 

The Federal Trade Commission advises individuals with tax obligations to initially attempt resolving their issues directly with the IRS.

If you decide to engage a tax-relief company, keep in mind:

• The IRS declines the majority of applications for offers in compromise
• If a tax relief company mishandles or delays your application, you remain responsible for your tax debt, interest, and penalties owed to the IRS
• There could be an upfront fee to the tax relief company, often a percentage of your tax liability. This fee might exceed the potential savings on your tax bill if the IRS approves your offer, and it may not be refundable if the IRS rejects the offer

Many tax assistance firms may require payment for services such as assessing your IRS debt, establishing a repayment arrangement, or determining eligibility for a compromise offer. However, these tasks are often achievable without cost by individuals themselves.

• Check your outstanding balance and payment history with the IRS by visiting IRS.gov/account.
• Access your tax records through the IRS, which offers five types of free tax transcripts providing insights into its records. These transcripts cover various details, such as line items from tax returns processed in the last three years and basic information like marital status, payment method, and adjusted gross income for the current tax year and up to the previous 10 years. (Note that a tax transcript differs from a copy of your tax return.)
• Consider setting up a payment plan with the IRS, as outlined earlier.
• Explore the possibility of qualifying for an offer in compromise using the IRS's online pre-qualifier tool. Remember that this tool is just the initial step; you'll still need to complete a formal application.

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How to Get Rid of Tax Debt?

Looking for the best approach to resolve your tax debt and alleviate the accompanying stress? Here's the answer: establish a payment plan and commit wholeheartedly to paying it off. 

We understand this may not be the instant remedy or magical solution you hoped for. However, regarding tax debt, hiding is simply not an option.

Taking proactive steps and swiftly eliminating your tax debt is undoubtedly the effective way to ensure it doesn't resurface in your life. Rest assured, we’ll leave you with clear instructions on repayment. Let us present you with a comprehensive game plan, guiding you through each step towards finally getting rid of those lingering back taxes.

Step 1: Work With a Tax Pro

Many tax debt relief services are available, all promising to assist you in resolving your financial predicament. However, when dealing with the IRS, having a genuine tax professional by your side is crucial, someone who will not exploit your situation.

Tax relief can become incredibly intricate and time-sensitive. The amount you ultimately pay the IRS heavily relies on how effectively you handle filing back taxes and completing relief forms. Given the high stakes involved, collaborate with an experienced individual who possesses extensive knowledge in this field and genuinely has your best interests at heart. 

Therefore, before taking further action, do yourself an enormous favor by diligently searching for a trustworthy tax expert you can rely upon completely.

Step 2: File Your Tax Returns

If you have outstanding tax debts with the IRS, it’s crucial to fulfill your obligation to file your taxes. You might be thinking, "But that's the issue. I am unable to settle my taxes." However, filing and paying taxes are separate. Not filing taxes is a punishable offense.

Hence, it’s imperative that you file for every year in which you owe taxes, regardless of whether you have made any payments in the past five years. This will allow you to determine the precise amount owed for each specific year.

Otherwise, relying solely on the tax bill sent by the IRS may result in overestimating your actual tax liability,  a common occurrence. Remember our earlier suggestion about consulting a professional? Well, this situation presents an opportune moment for their expertise!

Lastly, do keep in minremember that even if you’re concerned about not having enough funds to meet the deadline, it remains necessary for you to file your current year's taxes without fail.

Step 3: Get on a Payment Plan

If you haven't already, apply to a payment arrangement with the IRS. If you need help deciding which option to choose between a short-term or long-term payment plan, it ultimately depends on your income and how quickly you believe you can eliminate your debt.

However, consult with your tax advisor to determine the most suitable choice for your situation. Even if you opt for long-term monthly payments initially, you can modify your existing plan by increasing the amount paid each month (thus expediting its completion!).

Step 4: Attack Your Debt

Keep your foot on the pedal! Once you receive approval for a payment plan, the real effort begins. Even with a payment plan, interest and fees continue accumulating daily! The effective way to prevent your debt from growing is by attacking it head-on. Even if you have other outstanding debts, IRS debt automatically takes priority.

Allocate as much of your next paycheck as possible towards tackling your tax debt. Now is the time to significantly reduce your budget and focus solely on covering essential expenses like food, utilities, shelter, and transportation.

While at it, consider finding a part-time job to help boost your efforts. This situation requires all hands on deck! 

Continue making large payments as quickly as possible until the debt is completely eliminated. Yes, it may be intense but so is tax debt. The more dedicated you’re to paying it off promptly, the sooner you can regain control over your life.

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Can Tax Relief Companies Help?

Tax debt relief programs serve as the middlemen between individuals and the IRS. While they may promise to reduce or eliminate tax bills, it's important to proceed cautiously. These companies typically charge a fee for a service that individuals can handle independently.

In reality, tax debt relief programs often utilize the same financial hardship programs the IRS offers, which individuals can apply for themselves. Be aware of scammers who pose as legitimate tax relief providers and may try to exploit you financially or obtain your personal information.

However, there are reputable tax relief companies that can assist with your tax situation. If you lack the time, energy, or expertise required to submit an offer in compromise on your own, finding a trustworthy organization that can help might be worthwhile. Here are our top recommendations for tax relief services:

Larson Tax Relief

With a diverse array of business tax services, such as addressing payroll and federal tax problems, resolving conflicts with revenue officers, and handling worker classification issues, Larson Tax Relief is the ideal option for businesses seeking corporate tax debt relief assistance.

Larson Tax Relief offers a comprehensive range of tax debt relief solutions, catering to individual IRS tax debts and corporate taxes. They also provide support in delaying or preventing bank levies.

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Anthem Tax Services

At Anthem Tax Services, you can find assistance with both IRS tax debt relief and corporate tax preparation. Their team is dedicated to helping clients navigate various IRS tax debt relief programs such as offers in compromise (OIC), innocent spouse relief, and "currently not collectible" status.

What sets Anthem apart is its exceptional money-back guarantee, considered one of the best in the industry. They’ll refund your entire payment if they cannot secure any form of resolution from the IRS, whether it be a reduction in payment amounts or complete debt forgiveness.

However, this guarantee doesn’t cover the initial investigation fee. The fee typically starts at $350 and varies depending on the specifics of your case. Rest assured that Anthem Tax Services has your best interests at heart when providing comprehensive tax solutions tailored specifically for you.

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Community Tax 

Community Tax provides complimentary consultations and cost-effective investigation fees spanning $295 to $500.

The primary focus of Community Tax relief is assisting individuals with their IRS tax debt, while offering some assistance with state taxes. Like other industry companies, Community Tax handles various applications such as installment agreements and offers in compromise, excluding innocent spouse relief.

Customers with tax debt as low as $10,000 can avail of the services of Community Tax. The duration for their money-back guarantee varies across states and ranges between three to ten days. In case your issues aren’t resolved, they offer a complete refund.

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3 Signs of a Tax Relief Scam

Protecting your personal data is crucial when dealing with potential scams. Be cautious and watch out for warning signs before partnering with a tax relief company.

The Federal Trade Commission (FTC) has provided some useful indicators to help identify possible scams. Be wary of any company that exhibits the following red flags:

• Provides false assurances regarding obtaining relief from tax liabilities
• Misrepresents the processing time for debt relief request applications
• Omits pertinent information from financial statements submitted to the IRS

If you believe you have encountered a debt relief scam, you can report it to the FTC online or by calling 1-877-FTC-HELP.

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Tax Debt Relief – FAQs

How Can I Get My Tax Debt Forgiven?

The Internal Revenue Service (IRS) provides a program called an offer in compromise (OIC) for individuals who need help to fully repay their outstanding taxes. If the IRS approves your OIC application, you can settle your tax debt for less than its original amount.

However, qualifying for an offer in compromise is difficult, so relying on something other than this option is advisable. 

The IRS evaluates applicants based on their ability to pay, income, expenses, and asset equity. Only if the IRS believes that the proposed amount is the maximum they can collect from you within a reasonable timeframe will they accept your OIC request.

How Many Years Can You File Back Taxes For?

Fulfilling your tax obligations is a yearly requirement. Nevertheless, per the IRS guidelines, delinquent tax filings are typically not retroactively pursued beyond six years.

Who Qualifies for Tax Debt Relief?

The eligibility for tax debt relief varies depending on the program you apply for. However, many IRS programs will waive or reduce setup fees if you have a low income.

When applying for an IRS installment plan, whether short-term or long-term, there’s a specific dollar threshold that your tax debt must fall under to be eligible.

• Short-term plans: $100,000 or less
• Long-term plans: $50,000 or less

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Get Rid of Tax Debt for Good

Wow! If you have yet to notice, owing money to the government (and being in debt overall) can indeed have a heavy impact on you, financially and emotionally. 

It doesn't make things any easier that society and the financial industry constantly make it seem like being in debt is inevitable. But guess what? There's actually an alternative.

You can seek assistance from professional tax relief companies such as Larson Tax Relief, Anthem Tax Services, and Community Tax Relief to handle your taxes. These services are designed to provide much-needed support during this challenging time.

>> Larson Tax Relief: Best Tax Relief Services >>

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