There are plenty of options that provide you with the relief you need to get on with the more important things in life. The hard part is choosing which option is best for you in the long run. That’s where a tax professional comes in. First, read on to learn about the options so that you know what you have to work with.
Options For Back Tax Debt Relief
Statute of Limitations – How many times have you heard that the IRS can collect your taxes until the day you die or even come after your relatives for your taxes after you die? Contrary to popular belief, the IRS can only collect tax for up to 10 years after it has been assessed. While you could utilize this as a form of tax relief by waiting the 10 years out, it’s not advisable. The IRS is the most aggressive bill collector you will encounter. They will put liens on your home and car and even seize these items to sell to recover your back tax debt. Innocent Spouse – If you are not responsible for the debt that your spouse has accrued, the IRS will remove you from the liability of this debt.
This is called “Innocent Spouse”. For example, you marry the person of your dreams! He/She is perfect except for some tax debt leftover from a failed business. That tax liability occurred long before you were joined in holy matrimony! The IRS is reasonable enough to understand that you were not at fault for that debt and will remove you from the liability.
Installment Agreement – You can opt to make payments on your tax debt. This is a viable option for most but beware of the agreement you make for payments. Hire a tax professional to help you get the lowest monthly installments. Remember, penalties and interest are still being assessed while you owe money to the IRS, even if you’re making your payments on time. A tax professional can examine the possibility of lowering or removing these penalties as part of your installment agreement.
Offer In Compromise – This is the famous “settle your tax debt for pennies on the dollar” culprit. Many tax firms will entice you with the attractive notion that you can pay very little to wipe the slate clean. This option is available in a few rare cases, but for the most part, it’s not designed for the average taxpayer. The Fresh Start program is more likely to be suitable for the average taxpayer.
Contact a local tax attorney to see which Offer In Compromise method you qualify for.Tax Return Amendments – Tax returns can be tricky. With the ever-changing tax laws and the extreme attention to detail that is required for each and every tax return, many tax professionals prepare tax returns and miss small details that can cost the taxpayer a significant amount of money.
Oftentimes the review of a prepared tax return will reveal these small errors. Submitting amendments to these returns will cause the IRS to remove some of the tax liability that you owe.
Penalty Abatement – Sometimes the IRS will remove a penalty assessed if you can prove that extreme hardship caused your lack of filing or paying your taxes. Again, contact a tax professional to find out if your hardship is acknowledged by the IRS as something that kept you from taking care of your tax returns and debt. Currently Non-Collectible – Have you recently lost your job?
Is your small fixed income barely enough to make ends meet? The IRS is not wholly heartless. They will not harass you for payment or even move forward with subtle collection efforts if you are suffering severe hardships. If you can prove a severe hardship, the IRS will file your case as “currently non-collectible” meaning that there is no money left over after you eat and pay your bills to collect toward your back tax debt. While penalties and interest still accrue, you are spared the stressful and aggressive collection efforts the IRS is known for.
Bankruptcy – Today’s bankruptcy processes are not your mother’s bankruptcy process. While it may have been easy to wipe tax debt free through bankruptcy in the past, that is no longer the case. Some rare cases will call for bankruptcy as the most viable option to reduce tax debt, however, it’s such a strain on other financial areas of a taxpayer’s life that it’s worth looking at all other options first.