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While less than ideal, tax debt is relatively common. If you owe money to the Internal Revenue Service (IRS), a debt-free life is on the horizon, and there are options to help you get there.
Tax relief and tax resolution describe various policies and strategies for managing the debt you owe to the IRS. With the right support, you can select a tax relief option that suits your situation and implement tax resolution measures that work toward a repayment plan that works for you.
Navigating Tax Debt — There Is a Way Forward
Taxes are a reality of society, yet many Americans still owe money to the IRS. The most recent IRS projections show a gap of $688 billion between what taxpayers owe and what the IRS has received. This tax gap projection has caused the IRS to prioritize compliance efforts.
The IRS’s tax compliance initiatives can take many forms. Some attempt to help taxpayers pay on time and in full, while others seek to collect money from those who owe.
If you miss a deadline or neglect to pay taxes, the IRS will pursue your back taxes and may apply financial penalties. It starts with a CP14 notice arriving in your mail. From there, your debt could grow from penalties and interest. The IRS’s failure to pay penalty can increase your debt by up to 25% of the initial balance. Meanwhile, interest charges will accrue on the initial debt. Additional interest charges apply to the penalty.
Tax debt can snowball quickly, but various relief and resolution options are available to keep the situation under control.
What Is Tax Relief?
Tax relief is any IRS program option that helps taxpayers reduce the amount they owe after filing a tax return. This is a general concept that applies to all taxpayers, not just those who owe late tax payments to the IRS. You may be eligible for various tax relief options that reduce the amount you owe each tax year. The most common opportunities that define tax relief include deductions, exclusions and credits. There are also specific tax relief options designed to help you recover from tax debt.
Tax Deductions and Exclusions
Tax deductions and exclusions allow you to report a lower value for your annual income, meaning you pay less in taxes overall.
The IRS allows taxpayers to deduct or subtract a standard amount from their income each year. Your standard deduction amount depends on which of the five filing statuses you use. The standard deduction values change each year and generally increase to account for inflation. You can choose instead to make itemized deductions if expenses such as mortgage interest, student loan interest and charitable donations surpass the standard deductible amount.
A tax exclusion is similar to a deduction. Here, the income that you spent on qualifying expenses or received from qualifying sources is exempt from taxation. Some common tax-exempt payments and expenses include child support income, municipal bond income and employer-sponsored health insurance payments. Exempt expenses and payments count toward your income when reporting, but the IRS subtracts their value when calculating your tax obligations.
Tax Credits
A tax credit is a direct reduction of your tax bill. Any tax credit applies after reporting your income and tallying your bill. There are various tax credit opportunities through the IRS that shave specific values or percentages off of your overall bill.
The IRS offers numerous tax credit programs. Some credits are available to many taxpayers, while others apply to specific groups or situations. Some notable tax credit examples include the American Opportunity Tax Credit (AOTC) for postsecondary school expenses and the Earned Income Tax Credit (EITC) for low-income taxpayers.
Tax Relief for Debt
The IRS offers tax relief to extract revenue from those who owe them money. Most tax debt relief options accommodate those who owe more than they can pay immediately. There are also opportunities to reduce or totally absolve tax debt in certain situations.
Tax Relief as a Path to Debt Elimination
Tax relief can be a lifeline for taxpayers who owe more than they can pay immediately. If you forgot or otherwise failed to pay your tax balance during a given tax year, tax relief can reduce the burden of a sudden and hefty tax bill. The following tax debt relief options will disperse and potentially lower your tax payments.
Offers in Compromise
The amount the IRS demands may be more than you can afford. If so, making an Offer in Compromise is an option. An Offer in Compromise communicates a willingness to pay as much as is feasible.
Currently Not Collectible Status
Filing your tax debt as Currently Not Collectible (CNC) defers your payment obligations. The IRS will pause a CNC account, preventing enforceable collection actions like levies, wage garnishments and asset seizures. However, interest still accrues on any unpaid account.
Installment Agreements
The IRS is willing to accept monthly installment payments that dilute the total balance. An installment agreement is much like a loan — it establishes an installment minimum, plans a specific time frame, sets an interest rate and details the penalties for missing a payment.
Penalty Abatement
You can reduce the amount you owe on late taxes by convincing the IRS to eliminate some or all of your penalties. The IRS considers penalty abatement when the taxpayer can provide reasonable cause for the late payment.
There are cases when the IRS is open to compromising with taxpayers. If you owe a hefty amount and aren’t able to pay it, the IRS’ Offer in Compromise program might accept a payment that is less than what you owe.
Compromising with the IRS can be tricky, as the agency usually doesn’t take requests for reduced payments. Working with a tax consultant can help you see if compromising with the IRS will help you resolve your tax issue or if another option, such as a payment plan, might be more appropriate.
What Is Tax Resolution? The Professional Support You Need
While tax relief describes the options the IRS offers to help you rectify tax debt, tax resolution encompasses the strategy and tactics you implement in response to tax debt. Tax resolution services help individuals and businesses take advantage of relief opportunities.
You can receive professional tax debt support from a company like BC Tax, which offers tax resolution services. Our tax resolution team comprises Enrolled Agents with clearance to negotiate with the IRS. We can analyze your situation, determine the best tax relief option and maximize its advantages. If you owe money, we will mobilize a tax resolution plan that improves your financial standing while making life easier.
Tax resolution encompasses various procedures that we leverage within case-dependent strategies. As your partner, we can:
Negotiate Penalty Abatement
Tax resolution professionals can advocate for you if you receive a penalty. Their expertise empowers them to strengthen your penalty abatement request argument.
Apply for Non-Collectible Status
Obtaining CNC status involves completing and submitting various official documents. An experienced tax resolution firm can communicate effectively with IRS officials and deliver CNC applications promptly.
Respond to Enforced Collection Actions
Tax resolution services are valuable when the IRS enforces collection actions like wage garnishment. The Enrolled Agent can challenge the garnishment and work toward more feasible payment solutions.
Submit an Offer in Compromise
An experienced agent can help you secure a more favorable compromise with the IRS. Work with a tax resolution firm to submit and support a manageable Offer in Compromise.
Appeal Tax Claims
If you disagree with the information the IRS claims in your tax debt notice, a tax resolution professional can represent you before the Office of Appeals to rectify the situation and prevent collection actions.
Represent You During an Audit
Working with a professional can ease your mind during a tax audit. Tax resolution firms prepare clients for audits and manage their defense afterward.
Protest Tax Notices
The IRS could make a mistake when processing your return that leads them to submit a tax notice. Disputing erroneous claims is a part of tax resolution.
Implement a Tax Lien Discharge Strategy
An IRS tax lien could cause you to lose significant assets like your home or car. Your tax resolution strategy would include measures to stop or remove a lien.
Complete Unfiled Tax Returns
Filing back taxes is one of the first steps of debt management. Your tax resolution partner can efficiently submit tax returns for previous years.
Are Tax Resolution Services Right for You?
Tax resolution or tax relief services help individuals take advantage of opportunities to stop, reduce and disperse IRS collections. This type of service may be right for you if you recently received or are anticipating a CP14 notice from the IRS.
IRS claims can happen for various reasons — some justified and others not. Tax resolution services can benefit you whether you forgot to submit a payment, missed a deadline, suddenly incurred a large tax bill or otherwise drew the IRS’s attention. These services connect you with an Enrolled Agent who can provide valuable support. The Enrolled Agent can help by reviewing your relief options, negotiating with IRS representatives, completing all forms accurately and submitting them on time.
Pursuing tax resolution services has been the right choice for countless individuals. BC Tax clients have experienced the benefits in numerous distinct scenarios. Our services secured total tax debt elimination for one client, saving them over $13,000. Another client avoided thousands of dollars in tax debt that a former spouse accumulated and passed to them.
Contact BC Tax for Back Tax Support
BC Tax helps individuals and businesses return to good standing with the IRS by providing skilled guidance and support. Our Enrolled Agents serve clients nationwide and have a reputation for achieving excellent outcomes for those under the IRS’s scrutiny. We will embrace your back tax situation’s intricacies and leverage our expertise to work toward a satisfactory resolution. Please contact us online for more to discuss our back tax processes.
Our Tax Resolution Services:
Authored by the BC Tax Insights Team, this article reflects the collective expertise and experience of our seasoned tax professionals. The Insights Team at BC Tax comprises specialists with a deep understanding of various tax scenarios and solutions. With a focus on providing informative, accurate, and practical insights, our goal is to guide readers through the complexities of taxation and financial planning. Every piece is crafted with the intent to help individuals and businesses navigate the ever-evolving world of taxes, ensuring clarity and confidence in decision-making.
