How You Can Fix Your Tax Debt Problems With the IRS
The stress associated with a tax debt to the IRS is heavy to deal with many times. But instead of pretending time will solve it, you can be proactive and solve the problem. Don’t listen to the TV o Social Media trying to allure you with their offers. The truth is you need help to deal with the IRS but the helper you choose MUST be an attorney, an enrolled agent or a CPA. The IRS accepts only people with such credentials for tax debt resolution. That was the wise choice of one of our clients who is a Realtor and we helped him with his IRS debt. He ended up paying only 10% after the IRS accepted his Offer in Compromise.
You do have options if you are behind on your tax payments. These steps will make it easier to deal with your tax debt and create a plan to pay it:
1) Get a tax transcript to determine your debt, interest, and penalties
You can download a copy of your tax transcripts directly from the IRS website. Download a copy per each year you owe taxes.
2) Check if you filed your taxes for each year
Many times tax debts arise because of unfiled tax returns. Because you cannot claim your deductions due to filing omission, the IRS will create a return with the minimum of deductions that work against you. If you have unfiled tax returns, after filing your debt may reduce substantially. One of our clients had a $479K debt with the IRS for unfilled taxes. After filing due returns the liability reduced to zero. Click here for the testimonial video.
3) Determine if an installment agreement is the best way to go
If you owe less than $50K to the IRS, the best option is to apply for an installment agreement. To calculate the minimum monthly payment the IRS will accept, divide the total debt amount (including interest and penalties) by 72.
If you are going thru a financial crisis and you can prove your situation is critical, you may qualify for an offer in compromise even if you owe less than $50K. If your situation doesn’t allow you to afford the minimum amount, you should talk the IRS and tell them you cannot afford it. The IRS is very understandable.
4) If you are unable to pay the minimum to the IRS for an installment agreement
If your financial situation has deteriorated, there are two options depending on whether you expect the improvement of your finances in the future: economic hardship and offer in compromise. But before any of these options are selected, a detailed analysis of your situation is essential.
- If you sell all your belongings and property, how much is left to pay the IRS?
- Can you borrow thru a credit card or equity line to pay the IRS?
- After paying your living expenses, how much is left each month?
The IRS set their own limits for calculating living expenses. Subtracting your monthly income to the below living expenses limits will result in the amount left to pay the IRS:
|Expense||One Person||Two Persons||Three Persons||Four Persons|
|Apparel & services||$80||$148||$193||$227|
|Personal care products & services||$34||$61||$62||$74|
|More than four persons||Additional Persons Amount|
|For each additional person, add to four-person total allowance:||$341|
5) Apply for Economic Hardship
If you have no property and your monthly income is under or just there of the above table for living expenses, you may apply for an economic hardship. But for this option, the IRS will look into more detail both of your property, like house and car as well as your monthly income and living expenses limit. Once such numbers are run and you are still under the water, having no property and your expenses are over your income, you may apply for economic hardship.
Economic hardship is a deferment of your taxes. No payments are required but interest keeps accumulating. If you sustain the same financial situation for 10 consecutive years, your tax debt will be forgiven. At the end of the 10 year period, you should notify the IRS.
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6) Apply for an Offer in Compromise
If your financial situation has deteriorated and your property and income is decreased but you have the means to pay something to the IRS, then an offer in compromise is the way to go. Here the IRS will require an extensive questionnaire of your income, expenses, property and debts you have. Depending on that information, your petition will be granted and you will pay maybe 50% of the debt and interest.
7) Apply for a Bankruptcy
You can kill your tax debts by filing bankruptcy only for income tax. If you have a business and owe payroll taxes, you have to pay them. Also your income tax debt should be determined 240 days before the filing of bankruptcy. The IRS should have sent you a letter saying that you owe X amount of money. You cannot include your tax debts in your bankruptcy application if you filed an offer in compromise or an installment agreement.
Readers should note that this article is only intended to convey general information on these issues and that FAS CPA & Consultants (FAS) in no way intends for the contents of this article to be construed as accounting, business, financial, investment, legal, tax, or other professional advice or services. This article cannot serve as a substitute for such professional services or advice. Any decision or action that may affect the reader’s business should not rely solely on the contents of this article, but should rather be consulted on with a qualified professional adviser. FAS shall not be responsible for any loss sustained by any person who relies on this presentation. This article is subject to change at any time and for any reason.
If you are currently dealing with IRS debt, be sure to contact us and discuss which debt resolution option would be most beneficial for your present situation and future goals and opportunities.
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