Tax season can be an especially trying time for many Americans. A vast number of people have to grapple with the knowledge that they owe far more than they can currently afford to pay. This knowledge can weigh heavily on their minds and hearts until they devise a plan of repayment. Unfortunately, many people simply do not have the means to repay their tax debt. For those in this situation, the United States Government has devised a series of tax relief programs. An accountant can help you decide which program will be best for you.
A tax relief program does not necessarily reduce tax debt, but it can help efficiently manage the debt that is owed to the government. Each tax relief program comes with its own particular set of rules and regulations. It is imperative to consider these factors when deciding on a program. Nonpayment of tax debt can lead to penalties such as liens, levies, foreclosure, or late payment fees.
Although many tax relief programs are available from the federal government, the following are the four most common. Two of the tax relief programs are similar in that they involve monthly payments. In one tax relief program, the taxpayer can pay the government in monthly installments for 24 months. In the other tax relief program, the government is satisfied if you pay a monthly fee until your debt is repaid. The other two tax relief programs include a deferment plan or bankruptcy. A deferment plan is a means of promising the government that the debt owed will be repaid; however, current financial circumstances will not allow repayment at this time. With this type of tax relief program, the taxpayer agrees to repay their tax debt within a year. In the final form, bankruptcy, the taxpayer claims that they simply cannot afford to repay any of their current debts. This is the least attractive program as doing so can wreak havoc on the taxpayers credit rating.
There is a fifth tax relief program that is only available to a small percentage of taxpayers. In certain situation, the government may grant an Offer in Compromise (OIC). This means the taxpayer agrees to pay a portion of the taxes owed to the government. The OIC is the only tax relief program that could actually reduce the amount owed to the government.
The Offer in Compromise has three different options for tax debt relief. With the first, the taxpayer agrees to pay a lump sum. This sum would be a significant portion of what is owed. The other two options both involve making monthly payments. With one, the taxpayer agrees to pay the government a monthly fee until 24 months have passed. In the other option, the taxpayer agrees to pay the government a monthly fee until the Statute of Limitations on their debt has expired.
While the Offer in Compromise is generally appealing to most taxpayers, it is a tax relief program that is most commonly granted only to those who cannot possibly pay their tax bill. There is an extensive form to fill out as well as a $150 application fee. If you believe that you might qualify for this program, you should consult an accountant on the matter.
Once the government has approved a tax relief program, it is imperative that the taxpayer pays what is owed. The government accepts a variety of payment options, such as credit cards, personal checks, electronic debit cards, and money orders. Those who do not qualify for any of the tax relief programs available from the United States Government must devise a way to repay their debt to the IRS. Many people seek outside financial assistance for this matter such as bank loans, low-interest credit cards, and payday cash advance loans. Some may even borrow against a 401(k). While liquidating personal assets can be emotionally painful, it is preferable to the government placing a lien upon those same items, since a lien would also have a negative effect on ones credit rating.
While none of these options sound particularly appealing, it is important to attempt to pay off as much of the debt owed as soon as possible. Paying off a large chunk of tax debt early on will result in a lower amount of interest being added to what is owed.
In an ideal world, no one would ever need to worry about owing back taxes to any government institution, but life is not always so simple. Mounting tax debts and liens against personal property make resolving tax debt an issue that cannot be ignored. As they say, there are two things in life that you cannot escape: death and taxes.