Are you one of those people who are nervous about the amount of taxes you will owe this year? If so, don’t worry. Many taxpayers are surprised by the amount of money they owe, and don’t realize that there are several options available to reduce or even eliminate their tax debts. Here are some ways you may qualify for a dramatic reduction of the taxes you owe.
- Qualify For An Innocent Spouse Program
If you have filed a joint tax return with a spouse, you should be aware of certain issues that could arise. Even with a legal separation, spouses can still be held responsible for underpayment of taxes or dishonesty when filling out a tax return. This is not to say that options do not exist to trump this responsibility. If your former spouse has hidden a tax liability, then you may not be held responsible for paying it off. Additionally, if your partner shows that you failed to report taxable income, took improper deductions, or otherwise dishonestly filed your taxes, your partner may be eligible to seek relief from your shared tax liabilities.
To be eligible for this type of relief, a wronged spouse must demonstrate that they were legitimately misled and had no knowledge of the improper tax filing. Moreover, that same spouse has a limited amount of time (usually two years) from the date the IRS first tried to collect the unpaid taxes to ask for innocent spouse relief. Additional tax relief provisions for couples include:
- Equitable tax relief: This option is available for spouses who do not qualify for innocent spouse relief. Under limited circumstances, a spouse can use this option if they can prove that inaccuracies on a joint tax return were the legitimate responsibility of the other spouse. This option can also be used when tax reported on a joint return is correct but was not paid in a timely manner with the tax return.
- Separation of liability: This option offers an exemption for legally separated or divorced partners. In certain instances, partners who have not cohabitated for 12 months prior to filing taxes may be eligible for a certain amount of tax relief. This will depend on the amount you owe.
If you would like to see if you qualify for an innocent spouse program, it is vital to research, document your circumstances in writing, and seek out the assistance of a trained and experienced professional.
- Consider A Compromise
A common option that taxpayers can take advantage of is a settlement in compromise. Under certain circumstances, the IRS will allow you to pay a portion of what you owe in back taxes with the remaining amount written off by the IRS.
To take advantage of this option, you must provide written evidence that paying what you currently owe is a hardship. Next, you will have to propose an offer to pay the reduced amount owing in one lump sum or in installments. You should also be aware that the required form includes detailed information regarding spending habits, income, assets, investments, and any equity you may have in your possessions.
When evaluating your completed application, the IRS will look at your net worth and credit. Your income and monthly expenses will then be balanced to calculate what payments you can afford each month. You can’t apply for a compromise if you have an open bankruptcy filing. And finally, taxpayers that qualify for a settlement in compromise have two years to settle any taxes owing per the terms of their agreement with the IRS.
- Check The Statute Of Limitations
Are you worried about your ability to pay taxes owing from previous years? If so, you should know about something called a statute of limitations. This principle exists when it comes to the payment of taxes and dictates that the IRS is limited to 10 years to collect taxes, interest, and penalties after the date of assessment. If your taxes happen to become due before that ten-year limited period, you may still be able to resolve your tax case without paying a dime.
If the ten-year deadline is close, a tax relief firm or attorney can assist with filing paperwork to pause tax levies, liens, or seizures before statute of limitation deadlines. This will allow you to wait it out until the statute period passes and the IRS can no longer move to collect your past due taxes. However, this can be a risky strategy. If it is determined that you do not qualify, unpaid interest and penalties increase, and you could be liable for a massively increased payment to the IRS.
- Try An Installment Plan
In some instances, taxpayers use installment payments to pay off their tax debts. This payment method is comparable to a home mortgage. However, instead of paying a mortgage lender each month, the IRS gets paid instead.
To take advantage of an installment plan with the IRS, taxpayers must:
- Be current on filing all taxes.
- Have state income taxes mostly paid off.
- Make agreed upon monthly minimum payments.
Although the IRS makes every effort to compromise when collecting the money you owe, taxpayers who are unable to make timely monthly payments will be disqualified from making installment agreements.
Additionally, IRS representatives will not consider you for installments if you owe more than $50,000 in taxes. If installment payments sound like a good option for you, try consulting an attorney or a specialist who can help you effectively review your options and negotiate an affordable payment plan.
- Be Sure Your Taxes Are Collectible
If you qualify, the IRS will label your taxes as “not collectable” and payment will be temporarily paused. This option only lasts for as long as you are unable to pay, but it does stop tax levies, wage garnishments, and liens.
- Hire A Professional Tax Relief Company
If the amount you owe is high, hiring a tax relief professional may be the best option for you. Experts suggest that tax debt of less than $10,000 should be resolved between the IRS and the taxpayer directly. If your debt is greater than $10,000 and your issues are complex, a lawyer or tax professional might be a better option for an expeditious resolution.
- Alternative Options
Some taxpayers consider using a credit card to pay down their tax debt. This will depend on the amount you owe, your individual interest rates, and if your cards offer rebates or cash back options. However, this can be risky, as not everyone may be eligible to pay their taxes with a credit card.
Before you implement this plan, be sure to make a realistic budget for yourself so that you can afford to make the payments for the new debt you are incurring.
- Bankruptcy
One last option that some taxpayers resort to is bankruptcy. Although this option can eliminate tax debt, there are limitations. Not all taxpayers qualify for a discharge of past due tax debt. Bankruptcy can also have severe financial consequences that knock your credit rating down and make it challenging to borrow money for years after.
If you cannot afford to pay the amount owing, there is hope. Take action and speak to an experienced professional for practical advice as soon as possible. With the right knowledge and guidance, you have more available options than simply writing a check that empties your bank account and leaves you with serious financial concerns. This year’s tax season may have brought you an ugly surprise that you are not prepared for, but there are several options available to reduce or even eliminate your tax debt.
