4 Tax Debt Relief Strategies When You Can’t Pay

As around 80% of Americans are dealing with debt of some kind, a great portion of this debt is tax related.

Once you’re in debt to the IRS, tax debt relief is a huge need that you’re entitled to, no matter what your financial status is. If you’re not making enough to pay your full bill, you have a lot of options to ensure that you please the IRS while getting them off your back.

If you want to get the relief you need, check out these four tactics built right into the tax law.

1. Uncollectible Status

If you’re currently employed, you still might not be making enough to cover the tax debt that you owe. For people who are fully unemployed, it’s hard to imagine how you’d pay off a debt when you’re struggling to figure out how to cover even your basics.

There’s a status called “uncollectible” made just for people like you.

In this status, your collection account is frozen and the IRS won’t try to get any money from you that you don’t have.

If they’re calling and trying to contact you, they’ll cease this communication until your financial situation has changed. This gives you time to get back on your feet to get working again.

This isn’t a permanent fix to any tax problem, but it helps you from getting your wages garnished or from any bank levies. Property seizures are a real fear when you own the IRS and this tool allows you to put a halt to them.

You need to file a specific form, the Form 433A if you’re an individual and you want to ensure you’re registered as uncollectable. When you’re dealing with this issue as a business, fill out the Form 433B. This financial statement is meant to show the IRS that the money you have is needed to help pay for your day to day needs.

2. Offer in Compromise

If you want to settle your debt for less than what you owe, it’s possible to settle for as low as 10 cents per dollar that you owe.

The Offer in Compromise is a way for people to deal with their debt without having to go into the red. The IRS started offering this plan in 1992 because of a lot of writing that was done alerting the public that they have the right to discharge taxes.

With this program, you’ll talk to the IRS and their negotiators to settle for less so that debt can be written off and both parties feel satisfied. If you owe $50,000, you could offer to pay $10,000 and effectively pay only 20 cents on every dollar that you owe. This has been a huge aid to a lot of people who struggle to pay the IRS as they try to make ends meets.

As a taxpayer, you could save thousands in taxes and penalties. Since the IRS is notoriously very firm when it comes to the interest that you owe them, these tax bills add up fast. Rather than diving deeper into debt, compromising allows you to get the IRS off your back and to get back on track with life.

These programs come in three shapes, most commonly with the type based on your ability to pay. The other is based on the actual debt, good for people who have had bogus tax audits. The third and final way is to pay less if that payment would put you into financial hardship.

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3. Installment Plans

If you could theoretically pay your tax bill, but you need it broken into manageable chunks, you could pay via an installment plan. There are lots of monthly plans for paying off the IRS. To get into one of the plans, you need to contact them and work out your negotiation.

If you’ve been involved in a fraud scheme like a pyramid or Ponzi scheme and lost a lot of money, you could negotiate. In some cases, you’re allowed to recuperate some of your losses, as high as 40%. While this isn’t the case for everyone, it’s proven helpful in the past, especially when the government has achieved restitution from the people running the scheme.

This is a complicated process but it helps you to reduce your payment and keep you from paying too much in interest.

There are also partial payment plans to help you pay off the IRS at a reduced amount. This is a kind of best of both worlds approach to the negotiation tactics outlined above while also breaking it down to make it easier to pay.

Pay your unpaid back taxes in installments with the help of a negotiating attorney and you could lower your payments drastically.

4. Bankruptcy

If you can’t find what you’re looking for in the above solutions, there’s also the potential to claim bankruptcy. Chapter 7 bankruptcy is no small decision but allows many people to get the kind of fresh start they need. This helps some people eliminate debt entirely.

While the idea of starting a new life without any future IRS levies or liens, it’s also a huge decision. It obliterates your credit score and could lead to years of effort to recover. When you file this, the IRS cancels your debt and allows you to start over.

Everyone has the right to a fresh start but it’s also a huge responsibility. If you’re at risk of looking for a Chapter 7 bankruptcy, the IRS might want to push you toward an Offer in Compromise. If this is a real possibility, you end up with more leverage than you’d think.

You’ll find them digging around for exclusions and extensions before they agree to let you pay them nothing.

Tax Debt Relief is a Right

Believe it or not, tax debt relief isn’t just a privilege, but it’s a right for everyone. Incomes change and the ability of people to pay does as well. If you find yourself struggling to pay what you owe, you can get back on your feet while getting the IRS out of your way.

If you have a small business, follow our guide to ensure you don’t end up with any harsh penalties.

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