Tax relief just like the name implies comprises any incentive or program that is aimed at reducing the amount of tax debt that an individual or business entity owes.
In most cases, tax relief is intended to help relieve financial strain because of a particular event or occurrence. For instance, victims of a hurricane or wildfire may receive some form of tax relief if such an area is categorized as a disaster area.
They may also be privy to deadline extensions and may be able to claim casualty losses when they file for their federal income tax returns.
Tax relief sometimes encourages or rewards environmental causes. This is obvious in the case of tax credits as a result of the installation of energy-efficient windows or purchasing energy-efficient appliances.
This scheme doesn’t necessarily wipe away your debt. Instead, it makes it a lot easier for you to settle your tax debt. Explicitly, it involves negotiating a settlement with the IRS or setting up a payment plan that you can get behind and clear up your debt with rather quickly.
Why Does the IRS Offer Relief Programs?
The IRS are hounds with tax money as the scent. So, it would be pretty surprising to find out that the IRS does forgive tax debt. Although this may be a bit of a puzzle to you, the IRS does have a very logical reason for doing this?
Although the IRS receives a share of the national budget to carry out their activities, they still do not have sufficient resources.
Enforcing the IRS laws by collecting the required revenue and performing audits is really not child’s play.
In addition, the IRS has a time span of 3 years to examine your tax liability after you have filed a tax return. And this is really not sufficient time for IRS agents that already have so much on their hands.
Therefore, the IRS prefers to channel most of its resources into hounding wealthy taxpayers who try to evade their tax debts. In order to give them more time to focus on this, they are very open to negotiating with the average American taxpayer who is struggling to pay their debt.
The IRS tax relief programs work in two ways, they either reduce the amount of tax debt owed or work on a payment plan that allows debtors more time to pay up or a combination of both.
Filing for an IRS settlement is a pretty complicated process and usually requires knowledge of the tax code as well as impeccable financial reports. And while you can do this on your own, most people enlist the services of a top-notch tax relief company to take care of it.
What Are The IRS Tax Relief Programs?
1. Offer in Compromise
An offer in compromise is made by the IRS to allow you to pay less than your actual tax bill. Basically, the IRS deducts a particular amount from your tax bill and then you pay what’s left of it.
According to the IRS, an offer in compromise “may be a legitimate option if you can’t pay your full tax liability, or doing so creates a financial hardship.” However, for the IRS to accept your application for this scheme, they consider factors such as
- Your income
- Your expenses
- Your assets
- Capability to pay
Before applying, it is essential to confirm whether or not you qualify and this can be found on the IRS Offer in Compromise page.
Now if you qualify, you’re definitely going to be hard strapped for cash at least for a while. This is why it is important to know how to create a working budget. It would ultimately help your finances.
2. IRS Repayment Plan
The IRS may also allow you to reduce your full sum into smaller amounts that you can pay back periodically.
In order to qualify for the long-term payment plan (paying over 120 days or longer), your debt has to be below $50,000 in taxes, interests, and penalties all combined.
For the short-term payment plan (paying 120 days or less), your tax bill can be up to $100,000. While these payment plans may be a saving grace if you don’t have sufficient funds to pay up your tax bill completely, they also attract a cost.
Going by the plan you decide on, you may need to pay a setup fee of up to $149 in addition to internet and penalties until you clear up your debt.
3. Personal Loan
This is another option that you can explore if you don’t have funds at hand to pay your tax bill. However, before going down this path, find out whether the extra costs attached to securing the loan is significantly lower than an IRS payment plan offer.
If it is, then ensure that you are getting the best rates available. Intensive research and consulting are necessary to confirm this.
Similarly, carefully review your credit reports before applying for a loan so that you know exactly what lenders would be looking at.
4. Penalty Relief or Interest Abatement
Penalty relief is a car whereby the IRS cancels penalties that you’ve been charged on your tax bill when you tick certain boxes.
It is almost like a form of reward for situations like paying or arranging payment for any taxes owed or not having any penalties for the previous three tax years. If you qualify, you would still owe a tax debt.
The noteworthy difference is that your debt sum total would be lower when the penalties are deducted from the present balance.
The Bottomline
Tax debt is one debt form that bugs a whole lot of Americans. And the fact remains that getting out of it is not exactly easy. However, tax relief serves to make the burden more bearable and provides motivation to clear it all up.
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