5 Simple Ways To Reduce And Settle Your IRS Debt

IRS

Hi there! You may have read the title before clicking on the link. The title describes 5 simple techniques to reduce and settle your IRS or Internal Revenue Service debt. Both individual income and corporate income are taxed by the IRS.

Let’s discuss some current stats before diving into deeper about different tax settling ways. The tax return report for 2018 says that $154,297,000 was the total tax return. $137,866,000 tax returns were electronically filed. 

Yet, various reports have said people are still fearful about their IRS debt.

 

1. Why Do The Taxpayers Feel So Frightened About the IRS?

The IRS is informally called ‘Taxman.’ 

 

Look At The Causes Why Are Taxpayers So Afraid About The IRS?

  • Taxpayers usually think if you ask for a deduction on tax, the IRS does not take it in a friendly way. It is false. 

Of course, you will get a tax deduction if you are eligible to take it. For example, you will get tax benefits under 170(c) of IRC and 501(c) of IRC if you donate to a government certified charity organization. 

  • The second myth about the IRS is that they take tough action if you make even small mistakes. This is untrue. Small tax return mistakes are acceptable to them if it is 99% correct. They won’t impose any penalty on you for little mistakes. 

Shrug off all of your fears about the IRS. Follow the article to know how you can settle your debt with them.

 

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What Are The 5 Simple processes to settle your IRS debt?

You can slash a part of your unpaid tax or settle it if you follow these 5 simple procedures. 

  • Check out if ‘Offer In Compromise’ or OIC is suitable for you

You may follow the OIC to settle your debt for less than the IRS owes from you. 

 

1. There Are Some Rules To Follow Before Applying For OIC.

  1. Start the procedure by filling up Form 656
  2. Keep nothing as secret. Reveal your income, expenditure, assets, everything in detail to the IRS. 
  3. The application process is not free, though. You have to pay about $186 with your application form.
  4. The IRS officials will scrutinize your application. 
  5. You will only get an affirmative nod if they think you have written everything clearly and precisely. 
  6. Now they will start negotiating with you.
  7. Both parties will come to an agreement on what percent of the back tax you have to payback.

    Back tax means the partly or completely unpaid tax amount. 

  1. Once both you and IRS officials agree on percentage, they will give you a 2-year term to pay off your due tax amount.

 

What Are The Payment Options You’ll Get If You Select OIC?

Two types of payment options you will get if you select the OIC or Offer in Compromise.

  • Periodic Payment Option:

You have to submit your application & make the initial payment to the IRS. Pay the rest of the balance in monthly installments. Your debt will only be considered as completely paid when your monthly payment period will be over.

  • You can take the Lump Sum Cash payment option:

In this option, first, submit your OIC application form and 20% of your due debt. The rest of the amount will be paid in 5 or less than 5 installments.

  1. IRS Fresh Start Initiative – How OIC & FSI can give you relief

The FSI (Fresh Start Initiative) is attached to OIC (Offer in Compromise)

The IRS will look only at your future payment capability for 1 or 2 years under the Fresh Start Initiative. Previously, the future payment ability was measured for 5 years. 

The IRS has become soft on taxpayers now. You can pay off your federal, state, and local taxes in monthly installment if you cannot repay it in full at a time. 

  1. Installment agreement – IRS is offering you to pay tax in installment per month instead of an annual payment

It is a good chance for you to avoid a penalty on your unsettled pay back tax if you opt for the installment agreement. 

What’s So Special About It?

  • You may write to the IRS to give you a 5-year period to pay off your loan.  
  • Try making your monthly payment higher than what you negotiated with the IRS. 

A monthly payment plan means you don’t have to take the burden of repaying astronomical money at a time.

  1. You may file for bankruptcy to get a complete or partial relief

Chapter 7 or Chapter 13 of the Bankruptcy Code will help you if you file for bankruptcy. 

  • More precisely, chapter 7 will give a complete release from your IRS debt.
  • Chapter 13 of bankruptcy code clarifies that you have to pay off a part of your payback tax. The rest of the amount will be forgiven. 
  1. Statute of Limitations – It signifies your tax freedom like Statue of Liberty does

IRS follows a 10-year rule to collect unpaid tax. IRS deletes the record after 10 years. It is called, ‘10 Year Statute of Limitations.’ 

With help from advisors, you can use the ‘Collection Appeal’ legal tool. You can explain before the IRS why your asset should not be seized as the penalty of uncollected taxes by using the tool.

Beware of one thing. During the ending tenure of CSED (Collection Statute Expiration Date), the IRS turns a little aggressive. They want to collect the due tax by any means. 

So, use the ‘Collection Appeal’ tool very carefully to save yourself from their clutch.

 

2. Take A Look At 3 Types of IRS Tax Penalty Relief

IRS will waive your tax penalty if your reason is valid and fall under these 3 categories.

  • Reasonable Cause: 

Fire, disaster, death, and fatal illness fall into this category. The IRS may waive your penalty if they think your reason is valid.

  • Your penalty will be forgiven if you have made the mistake for the first time: 

You have forgotten to pay tax for the first time or you have forgotten to file the tax return. Your first mistake is skippable from penalty.

  • Statutory exceptions: 

Your case may be filed under it if you have received an incorrect statement from the IRS. You have to present original documentation before them to waive off the tax penalty.  

 

3. You May Take Help From IRS Tax Settlement Firms

The Internal Revenue Service may subject you to a penalty if you delay in tax payment. The IRS can seize your assets as a penalty. That is why tax settlement firms have grown up to help people. 

Community Tax, Anthem Tax Service, are some prominent tax settlement firms. 

The common features that you can get from tax settlement firms:

  • The unpaid tax should be a minimum of $10,000.
  • You’ll get a free tax consultation from the firms.
  • You’ll even get offers that if they cannot execute their duty they will return you a part of their fees.  

 

4. Take A Look At How The Firms Can Help You

Though everything is buried under advertisement, you have to find out what is the real fact behind the promotions. 

First of all, check out whether or not any IRS expert is involved with the firm. 

People, in general, say IRS or Taxman is the toughest creditor of all. You may go to reduce and settle the debt individually or may appoint a negotiator firm. 

The success rate is not too impressive as the report says. (Only 10% of the firms’ clients get success after dealing with the IRS.) 

 

5. Your Problem Won’t Be Over With IRS Debt Only; Try Settling Your Unsecured Debt Too

You can opt for credit card debt consolidation if you are suffering from a credit debt-related headache for a long time. 

First, start with the debt consolidation loan. You ‘re able to take out a new loan to pay off all your existing debts. Then, repay your new creditor with a single monthly payment. 

You may think you are already entangled in both IRS debt and credit card debt. What’s the need of taking out a new loan? 

Well, the interest rate of your new loan will be lower than your previous debt. Besides, you no longer have to remember more than one payment debt. Make a single monthly payment on a single date; you have nothing to worry about.    

The balance transfer method is another way of settling your credit card debt. Balance transfer means transferring your outstanding balance to a new credit card. 

 

Why Should You Do This?

You may opt for a balance transfer method to avail lower interest rate or zero percent interest rate facility. You have to pay off your outstanding amount within the introductory period of 6 to 18 months. Only then, you can enjoy the 0% facility

Take care of one thing. A good credit score is very necessary to get both the debt consolidation loan and balance transfer facility. The good credit score will help you to secure a debt consolidation loan and balance transfer facility at your suitable interest rate. 

Generally, a 700 point score or above is considered a good credit score to get all the facilities.     

You may choose another option of settling your credit card debt with the debt consolidation program. Furthermore, you may go to a debt consolidation firm if you have more than one credit card debt. The debt consolidator will negotiate with your multiple creditors. The condition of negotiation is to reduce the interest rate of your multiple payments. 

A slashed interest rate means your payment is going to be lower than before. 

You have remembered multiple payment dates before. Remember a single monthly payment date now. All of your problems are over.  

IRS is not at all a heartless organization as some people assume it is. It has to act tough for the well being of our country. However, it has given some escape avenues too (as written above) for the honest taxpayers in case they are facing any problem. 

You may choose any of the suggestions to rip or settle your IRS debt in an easy way.

 

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