Tax debt settlement is a complicated process that is often feared by those filing for it. Though it has certain legal guidelines that make the process complex, it is effective in curbing your tax problems.
When settling tax debts, there are many options you can choose from. The IRS understands that there are certain circumstances where individuals should not be held liable for some of or all of their taxes. Here are a few options that you can consider when settling debts:
1. Offer in Compromise
An offer in compromise does not fulfill everyone's needs. The IRS provides strict eligibility guidelines, which makes the filing process a bit difficult. Normally, the IRS accepts an offer in compromise when the offer is equal to or greater than the amount they could otherwise collect from you.
An Offer in Compromise is similar to a settlement with a commercial creditor. Here, you need to make an offer that will help you to pay back as much as your debts as you can. The IRS analyzes your offer and either accepts it, counter-offers, or rejects it according to the terms of your tax debt settlement proposal.
If the amount you owe is in doubt, the IRS has a procedure to verify how much you owe before they will accept your settlement proposal.
2. Innocent Spouse Relief
This kind of tax relief is only available to those taxpayers who have filed Married Filing Joint (MSJ) for that tax year. When you file a joint tax return, you and your spouse are equally liable for all taxes, penalties, and interest for that year. The innocent spouse relief was created by the IRS to provide some advantages to an innocent spouse. However, filing for innocent spouse relief can take a long time to be approved.
3. Penalty Abatement
Penalty abatement is a method used by individuals to get the IRS to forgive certain penalties that have been charged on their tax debt. It is one of the common methods that are used to settling tax debts for less than what it actually is. About one third of all penalties assessed by the IRS are abated at a later date.
4. Partial Payment Installment Agreement
A Partial Payment Installment Agreement is similar to a normal Installment Agreement. Here you pay your income taxes over a long period of time. It is a bit different from the other options as you pay less than the total amount you owe to the IRS. It is mainly caused if the Statue of Limitations expiration on each period of your tax debt, a part of debt gets discharged and you no longer responsible for that portion. However, this is not a recommended option.
5. Tax Debt Settlement Services
If you want to settle IRS and/or state taxes with professional help then you can get help from a tax relief company. The company will analyze your financial situation and find the settlement method that would best suit your situation under the law.
It is therefore advisable that you look for professional guidance before you decide on a particular option!