Taxes can be a serious burden and many Americans seek out tax debt forgiveness to help manage their obligations. Before seeking out a tax debt relief program or sinking cash into the first attorney that makes an offer, review this guide on what everyone needs to know about getting started with tax debt forgiveness.
Does the IRS Offer Tax Debt Forgiveness?
The IRS doesn’t offer an explicit tax debt forgiveness program nor is there an IRS debt forgiveness form. Despite common misinformation, there is no “IRS one-time forgiveness” for tax debt either.
The confusion stems from the two tools the IRS does offer: a form called a “cancellation of debt” form, or Form 1099-C, and a first-time penalty waiver for people who miss certain deadlines.
However, the IRS does offer several options to help people manage their tax liabilities, and there still might be potential for tax debt forgiveness depending on the individual circumstances.
3 IRS Tax Debt Forgiveness Resources to Get Started
Even though tax debt forgiveness isn’t an option for everyone, there are multiple opportunities for people wondering how to get out of tax debt.
1. Payment Plan (Installment Agreements)
The IRS offers a short-term payment plan and a long-term installment agreement. Each option has different stipulations and costs, so it’s important to review the options before applying. The general standards for each payment plan are:
- Installment terms: A short-term payment plan must be paid within 120 days. The length to pay an installment agreement will depend on the unique factors in each situation, such as the amount of tax debt and a person’s income.
- Program costs: With a short-term payment plan, the IRS does not charge a setup fee regardless of whether someone applies online, by phone, or by mail. For a long-term installment agreement, the costs vary depending on how someone applies and what payment method they use.
- Approval limits: Applying online is generally the easiest option but it’s only available for individuals that meet certain tax debt limits. For a short-term payment plan, people can apply online if they owe less than $100,000. The limit is $50,000 for long-term installment agreements.
There might be other stipulations depending on the unique tax situation. There are tax professionals that can offer guidance in the right direction.
2. IRS Offer in Compromise
An “offer in compromise” is the closest IRS option to debt forgiveness. However, it does require a fair bit of research to craft an offer that the IRS will accept. There are some general guidelines to an OIC, which include:
- Eligibility: The IRS doesn’t list specific eligibility criteria for the OIC program. They do, however, indicate that they review an individual’s ability to pay, income, expenses, and asset equity.
- Costs: The application fee for the OIC program is $205. The IRS does offer a low-income waiver for people who qualify, as well as a waiver for anyone who submits a “Doubt as to Liability” offer.
- Payments: Even if someone submits an OIC, the IRS offers payment plans for tax debt, though the initial payment will vary. They also accept lump-sum payments and the initial payment is 20%.
The IRS doesn’t give a specific amount they expect to collect from each offer in compromise, but they do accept offers that represent what they think they can collect in a reasonable amount of time.
3. Tax Debt Relief Programs
Managing tax debt can be complicated when individuals need to negotiate an offer in compromise or installment agreement. Tax debt relief programs are an option for people with significant tax debt. They can offer strategic guidance because of their:
- Experience working with other clients and routine interactions with the IRS.
- Knowledge about the best tax debt forgiveness option for each unique situation.
- Willingness to dive deep to look for ways to reduce an individual’s tax debt.
While it’s true that some tax relief programs can be scams, there are legitimate solutions that can help negotiate the complex world of taxes.
Practical Tips for Reducing Potential Tax Debt
Tax debt forgiveness is an effective way to manage accumulated debt, but taxes never go away. That’s why it’s important to create a strategy for reducing future tax liabilities, which should help anyone avoid a massive tax bill.
Two of the most commons ways to reduce or eliminate tax debt are:
- Retirement plans: Investing in a 401(k) or IRA is one of the most accessible ways to reduce tax liabilities for millions of Americans. The investment is made before taxes are assessed, plus many employers make matching contributions to 401(k) plans.
- Tax deductions and credits: Most Americans are familiar with common tax credits and deductions like the Earned Income Tax Credit and deductions for medical expenses or property taxes. However, there are dozens of other deductions and credits that can significantly lower tax debt. Consider talking with a tax professional to see what might be available.
There are other opportunities to manage tax debt, but they do require some strategic work and potentially help from a tax planning professional or investment advisor.
Get Help with a Tax Debt Relief Program
Even armed with this guide, it can be daunting to see out tax debt relief help. However, the right team can guide someone through the tedious process of seeking tax debt forgiveness while securing the best offer possible.
For help with IRS and state tax debt over $10,000, call 1-800-928-5035 for a free consultation.
