Crush Tax Debt: 3 Proven Strategies to Ease Your IRS Burden

Tax season can be a stressful time for many individuals, especially if you have tax debt. However, it’s important not to let the IRS crush you under the weight of penalties and financial burdens. In this blog, with the help of the valuable insights of Mr. Joshua Webskowski, we will guide you through helpful tax filing tips on how to avoid penalties and manage your tax payments effectively.
Read along to learn the 3 proven strategies that can help you regain control of your tax situation.

Know the 3 Proven Strategies to Ease your IRS Tax Burden

For every problem, there has to be a solution. In this case, too, you have your own solutions. So, let’s have a look at them:

IRS Offer In Compromise

An OIC allows you to settle tax debts for less than the full amount, suitable if full payment leads to financial hardship. It considers your income, expenses, and assets.

Eligibility for OIC: Who Can Apply?

  • Must have filed all required tax returns and estimated payments.
  • Not in an open bankruptcy proceeding.
  • Have made recent tax deposits if you’re an employer.

Steps to Applying for an OIC:

  • Gather financial information: List assets, debts, monthly income, and expenses.
  • Complete Forms: Use 433-A (OIC) for individuals or 433-B (OIC) for businesses to illustrate your financial standing.
  • Attach Documents: Provide the necessary documents listed in the forms.
  • Fill Out Form 656: Propose how much you can pay against your tax debt.
  • Payment and Fees: Include initial payment and a $205 application fee, or follow Low-Income Certification rules if applicable.
  • Mail Your Application: Send all documents to the IRS and inform any IRS representative you’re working with.

IRS Penalty Abatement

Penalty Abatement from the IRS allows taxpayers to reduce or eliminate certain penalties. This relief is available for those facing unavoidable circumstances that prevent them from paying taxes or filing returns on time.

Eligible Penalties for Abatement

The IRS may abate several penalties, including:

  • Failure-to-file penalty: This is a fine you get when you don’t file your tax return by the due date.
  • Failure-to-pay penalty: This is a fine for not paying the taxes you owe by the due date.
  • Accuracy-related penalty: This fine is given if there are big mistakes or errors in your tax return, meaning you didn’t report your income correctly.
  • Fraud penalty: This is a serious fine for when someone intentionally does something wrong on their tax return to avoid paying taxes.

Eligibility for IRS Penalty Abatement

To qualify, you must demonstrate a reasonable cause, such as:

  • Serious injury or illness
  • Death in the family
  • Natural disaster
  • Separation or divorce
  • Inaccessibility of necessary records

How to Apply for IRS Penalty Abatement?

  • Identify Penalties: Determine which penalties you’re seeking to abate.
  • Penalty Abatement Letter: Write a letter to the IRS including your details, the penalty reasons, and any justifying evidence.
  • Attach Supporting Documents: Include any documents that support your case, like medical bills or records of a natural disaster.
  • Mail the Letter: Send your letter and documents to the address provided in your IRS notice, or contact the IRS for the correct address.

After submission, the IRS will review your case and notify you of their decision. If denied, you have the right to appeal.

Currently Not Collectible (CNC) Status

CNC status lets you pause your IRS debt payments. Your debt stays, but the IRS stops actions like taking money from your bank. This happens if your money isn’t enough for basic needs. The IRS will check again if your earnings go up.

Who is eligible for the currently not collectible status?

  • If you make very little money and can’t afford basic needs plus taxes.
  • If costs for things like home, bills, and health use up most of your money.
  • If you’ve lost your job or have big health expenses.
  • If you don’t have much stuff that could be sold to pay off the debt.
  • You must have filed all your tax returns and tried to fix your tax debt.

How to apply for a currently not collectible status?

  • Collect Your Money Details: List your income and bills. Gather things like your pay slips and bills.
  • Make Sure Taxes are Filed: You need all your tax returns up to date before applying.
  • Fill Out Form 433-F: This IRS form tells them about your money situation.
  • Explain Your Situation: Write a short letter to the IRS saying why you can’t pay your taxes.
  • Show Proof: Attach any papers that show why you’re in a tough spot, like medical bills or a layoff notice.
  • Send Everything to the IRS: Mail your form, letter, and proof to the IRS. If you don’t know where to send it, call them to find out.
  • Talk to the IRS if Needed: Answer any calls or letters from the IRS quickly.
  • Wait for Their Answer: The IRS will tell you if they agree you can’t pay right now.
  • Update the IRS on Changes: If your money situation gets better, tell the IRS.

Even with CNC status, your tax debt grows with interest and penalties, but the IRS won’t take your stuff. They check every year to see if your situation has changed.

Bonus Tips

  1. Bankruptcy for Tax Debt Relief: Filing for bankruptcy might erase some tax debts, but it’s a big step. It’s important to talk to a lawyer to see if it’s right for your situation. Individuals overwhelmed by tax debts may find relief through bankruptcy, although not all taxes qualify for discharge.
  2. Innocent Spouse Relief: If your spouse made mistakes on their tax returns without your knowledge, you could apply to not pay for their errors.
  3. Injured Spouse Relief: If your tax refund was used to cover your spouse’s debt, bills, or child support, you might get your part of the refund back with this relief. You are eligible if your portion of a joint tax refund was unfairly used to cover your spouse’s debts.
  4. Installment Agreements: Taxpayers unable to settle their tax bill in full may opt for a structured payment plan. Eligibility requires that all tax filings are up-to-date, and you owe $50,000 or less in combined taxes, interest, and penalties.

End note

Tax debt can be overwhelming, but it’s important to remember that there are strategies you can use to avoid penalties and manage your payments effectively. Familiarize yourself with tax brackets, deductions, and credits that apply to your situation to get rid of the tax burdens.
If you have any further tax-related questions, please feel free to reach out to us at besttaxpro.com. Remember, taking proactive steps to get tax debt relief is the first step toward financial stability and peace of mind.
In addition to guiding the strategies to ease your IRS Burden, Best Tax Pro offers help with various tax issues. Our services include IRS audit support, addressing final IRS notices, and helping with unfiled taxes. We specialize in settling tax debts, defending audits, and reassessing past audit decisions. We can also assist with overdue back taxes, 401K tax debts, and resolving wage garnishments.

Author

Mr. Joshua A. Webskowski

Joshua specializes in successfully resolving cases in all areas of tax resolution including liens, levies, & other IRS collections cases.

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