The average American pays about $10,000 in federal, state, and local taxes every year.
This might not sound like much, but if you run behind on your annual taxes, you can rack up substantial tax debt in a few years. Tax delinquency is a common issue, considering that Americans fail to pay over $400 billion in income taxes annually.
Now, when you have tax debt, pay it off as soon as you can. But if you’re unable to pay up, you can seek tax relief.
So, what is tax relief? Is it an ideal debt forgiveness program?
Continue reading for more insight.
What Is Tax Relief?
The Internal Revenue Service runs tax relief programs designed to help people who have tax debt pay it off.
Bear in mind that, in the vast majority of cases, qualifying for tax relief doesn’t mean your debt will be wiped off. It means you have an opportunity to negotiate a repayment plan that suits your current financial situation.
The application of tax relief varies from person to person.
For some, relief might mean breaking down your debt into smaller, manageable installments. If you owe, $10,000, for example, the IRS might agree to a proposal to settle the amount in four years, meaning you’ll pay $2,500 per year. This is also known as the fresh start information program.
For others, some amount might be waived off from the total tax owed, after which you can settle the balance in one lump sum. For example, if you owe $10,000 in taxes, the IRS might reduce it to $8,000, on condition that you will settle it in a one-off payment.
In other cases, tax relief can mean getting a deadline extension. Getting a two or three-month extension can give you enough time to reorganize your finances and settle your tax bill. This is option is typically available to disaster victims.
Other tax relief programs include.
- Currently not collectible status – The IRS will stop pursuing you for some time (up to 10 years) if you’re currently in severe financial hardship.
- Tax liens withdrawal – The IRS will revoke liens it placed on your assets
- Penalty abatement – The IRS will remove tax penalties placed on your account.
How to Qualify for Tax Relief
The IRS doesn’t aggressively promote its tax relief programs because it doesn’t want to encourage people to default on their taxes knowing they’ll get some relief in the future. This means there’s a high bar for qualifying for relief.
Nonetheless, the first step is to identify the program best suits your situation, gather all the documentation that supports your case, and then start negotiating with the IRS. If you’re proficient in tax matters and your negotiation skills are topnotch, you can take on the IRS on your own.
Another option is to hire a tax relief company. This service will cost you money, but a specialist will give you the best chance of getting tax relief. They will assess your situation, identify the most suitable relief program, and handle your negotiations with the taxman.
Get Help Paying Off Your Tax Debt
If you’ve been asking, “What is tax relief?” you’re probably behind on your taxes. Now that you have the answer, we hope you’re ready to get help.
There’s nothing to be ashamed of when you owe the IRS. What matters is you have a chance to work out a payment plan that suits your situation. Some of your debt might even be forgiven.
Good luck and keep reading our blog for handy financial tips.