Start Your New Year with a Clean Slate: Get Relief from Tax Debt
The New Year is supposed to be about starting fresh, improving ourselves, and making the next year even better than the last. That can be difficult to do when you’re dragging around the same tax debt after the ball drops. If you’re looking to start the New Year off with a clean slate, you need to find a way to get rid of that tax debt, or at least get it under control. Here are some options for helping you do just that.
Offer in Compromise
Qualifying for an offer in compromise (OIC) can be difficult. The requirements are strict, and the process is often complicated. However, if you have little to no income, no income prospects in the future, and few assets to your name, you just might be able to receive one—and end up settling your tax debt for less than you owe.
Before you apply for an OIC, it’s a good idea to sit down with a tax settlement firm to discuss whether or not you’re a good candidate. Applying for an OIC does come with a fee, and you don’t want to waste your money (or your time) on a settlement option that’s not right for you. If your tax settlement expert determines you’re a good candidate for an OIC, they can guide you through filling out the application packet and submitting an offer. Essentially, you and your CPA will determine a reasonable amount that you can afford to pay on your tax debt, then ask the IRS to accept this payment amount instead of the total amount you owe.
The IRS will thoroughly investigate your finances, including all your assets and income sources, to determine if your offer amount is the most they can reasonably expect to collect. It’s incredibly important that the offer you make is a fair one, carefully calculated to increase your odds of being approved. Otherwise, your OIC application will be rejected.
If the IRS does accept your OIC, you’ll be required to pay the full offer amount. You will also need to file and pay your taxes every year for the next five years. If you fail to do this, you will once again owe your full tax debt. However, if you keep to these terms, the remainder of your tax debt will be erased.
Long-Term Monthly Payment Plans
Long-term payment plans are quite a bit more common than OICs, but that doesn’t mean the IRS will give them to just anyone. There is still a great deal of paperwork involved in applying for, then setting up a payment plan, and it’s best to work with a professional to ensure you do so correctly. The more you owe, the more difficult it is to set up a payment plan, so keep this in mind.
As the name implies, a long-term payment plan allows you to set up monthly payments to pay off your IRS debt. While this obviously won’t erase your tax debt for the New Year, it can help you to get things under control, and provide a great deal of relief in knowing that you’re on track to clear your debt over time.
Please note that you will continue to accumulate interest and penalties on any unpaid tax amount every month. However, if this is your first time falling behind on your taxes, and you carry out your payment plan successfully, you can request first-time penalty abatement when your payment plan is complete.
Currently Not Collectible
While this is not a tax payment plan, it can provide relief from persistent collection calls and any attempts to garnish your paychecks, levy your bank accounts, or place liens on your property. The Currently Not Collectible status, also simply referred to as CNC, can be placed on your account if you are unable to pay your taxes while paying for basic living expenses.
Having this status placed on your account requires you to fill out several forms and provide documentation regarding your income, assets, and expenses. If the IRS agrees that you can’t reasonable be expected to pay your tax debt and meet your basic needs, they may put a CNC status on your tax debt. It is important to be aware that this does not erase your tax debt. If your situation improves, the IRS may begin collection efforts once again. Additionally, your tax debt will continue to accrue penalties and interest throughout the time that your account is under CNC status.
If you want to settle your tax debt or set up a payment plan to improve your financial situation in 2022, we invite you to contact our friends at the IRS Advocates. These qualified CPAs specialize in helping taxpayers like you settle their tax debts. Reach out to see how they can help you get a clean slate.