Many of us forget about taxes until April 15th rolls around. As a result, some of us discover too late that we did not manage our tax debt efficiently. When this happens, a tax debt reduction may be a viable means of repaying taxes owed to the United States Government.
There are actually only a few methods of tax debt reduction. The most sought after form of tax debt reduction is the Offer In Compromise. This program allows the taxpayer to pay only a portion of the tax debt owed to the Internal Revenue Service (IRS). The total amount of the tax debt reduction varies according to the individuals financial situation.
The Offer In Compromise program has three tax debt reduction repayment options. The first two are similar in that the taxpayer agrees to pay monthly installments to the government. These tax debt reduction payments continue for either 24 months or until the debt has reached the Statute of Limitations. The third option of the Offer In Compromise involves a debt settlement with the IRS for a partial amount of the tax debt owed. This amount is then paid to the IRS in one lump sum payment.
Unfortunately, the Offer In Compromise tax debt reduction program is not available to everyone. This is a need-based tax debt reduction program and it is highly selective. To receive information and an application regarding this program, the taxpayer need only contact an accountant. However, there is a $150 fee that the taxpayer must pay if he/she decides to file. For those who live at the poverty line, this fee may be waived; but all other taxpayers must pay the fee prior to filing. Considering the hefty application fee and the selectivity of the program, it is advisable that taxpayers consult an accountant or tax professional before applying for this tax debt reduction program.
The government offers four tax relief programs to help taxpayers manage their unpaid tax debts. In the first program, the taxpayer can pay their tax debt in monthly installments. However, tax installment plans are not always attractive to filers because the debt continues to accrue interest as long as there is an outstanding balance. This could result in a high amount of interest being paid over time. There is a newer version of this installment plan, though. On January 17, 2005, the IRS added an additional payment option called The Partial Payment Installment Agreement (PPIA). This plan allows taxpayers to enter into a monthly installment agreement with the government that could result in partial payment of the tax liability.
The government also offers a deferment program wherein taxpayers agree to repay their outstanding tax debt within the next year. This option is for taxpayers who do not currently have the funds to pay the amount owed, but will have it within the next few months. The final, and least attractive form of tax relief available is referred to as bankruptcy. This should be a filers last option. A bankruptcy may alleviate current financial burdens; however, it can also prevent new credit from being procured for at least ten years in the future.
Tax debt reduction help can come from outside sources as well. Taxpayers who cannot afford to pay their tax debts on time may apply for a loan from a bank or loan agency. Others may take out a payday cash advance from their credit card companies or borrow money from friends or family members. These options may not sound like forms of tax debt reduction, since the full amount of tax debt is being repaid; however, these options can prevent the taxpayer from being charged steep penalties and late fees by the IRS.
Consequently, the best form of tax debt reduction is to manage finances well during the tax year. Many people simply dont have enough taxes withheld from their paychecks each pay period. Indeed, claiming the maximum number of dependents can result in a larger monthly paycheck; but doing so may also result in more tax debt at the end of the year.
In the long run, it is better pay more taxes throughout the year than to owe more than can be afforded on April 15th. However, for those who are in need of a little help come tax season, the government does offer a tax debt reduction service. A professional tax accountant can assist taxpayers in finding the program that best suits their needs.