How To Lower Your Tax Debt

Will The Irs Ever Forgive Or Negotiate Tax Debt

It is within the IRS best interests to efficiently collect tax on behalf of the government, encourage voluntary compliance, and promote reasonable fairness and consistency. To that end, the IRS does allow certain taxpayers to negotiate their debt to mutually benefit the IRS collection goals and the taxpayers reasonable ability to pay. While the IRS will not traditionally forgive debt, they are willing to negotiate. Because of that fact, debt settlement and resolution remain important assets for taxpayers looking for much needed relief for their situation.

See If You Qualify For Oic To Reduce The Amount Of Your Debt

You can apply for an OIC if you think that your tax debt is too high to pay. You might be eligible for an Offer in Compromise if:

• Your situation has changed since you filed your taxes, like a job loss or serious medical condition.
• The IRS says theres been a mistake on their part.
• You dont have the money to pay off your debt due to financial circumstances beyond your control, such as the taxpayers death or family or job loss.

Reduce Your Taxable Income

You can deduct certain contributions from your taxable income, which reduces your tax liability. Some ways to earn tax-free income include contributing to a health savings account, putting money away for your childrens education in a qualified plan, investing in municipal bonds, spending some of your earnings on out-of-pocket health costs and passing some of your investments to your children. In addition to helping you avoid tax debt, these options can help you save money for future expenses or benefit your children or family.

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Dealing With Back Taxes

The IRS can help reduce or eliminate your tax claims, but they need to know that you want to get out of debt. They will work along with you and recommend a payment plan that allows you to pay off your debt within three years. The sooner you notify them about your situation, the better the chance of finding a solution that works for both of you.

The IRS will have its plan for paying back taxes and understanding how much money each month goes toward taxes can be confusing and intimidating. However, the IRS makes it easy by providing several scenarios based on income level so that people like you dont have any excuse not to contact them if something happens, such as losing their job or getting behind on bills.

How Do Tax Relief Services Work

Tax relief can allow you to break down your back taxes into payments or reduce the amount of tax you pay to the government.In some cases, your entire tax balance could be forgiven. Here is how the tax relief process usually works.A team of tax experts meets and investigates your tax situation to determine what major tax issues you’re facingand which solutions provide the best chances of success.

Common strategies include requesting an offer in compromise, an installment agreement, penalty abatement, innocent spouserelief, or claiming currently not collectible status. Once they choose a strategy, they negotiate with the IRS or your staterevenue department until there is a resolution.

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Let An Attorney Help You Lower Your Taxes

There are a number of ways to reduce your tax exposure, but these can shift as laws change. As you sit down to work on your tax planning, having a qualified tax attorney at the table with you can make all the difference. Get your questions answered and start the process of lowering your tax burden by speaking with a local tax law attorney.

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How Much Can You Deduct

The amount of money that you can deduct on your taxes may not be equal to the total amount of your donations.

• If you donate non-cash items, you can claim the fair market value of the items on your taxes.

• If you donated a vehicle, your deduction depends on if the organization keeps the car or sells it at an auction. A Donors Guide to Vehicle Donation explains how your deduction is determined.

• If you received a gift or ticket to an event, you can only deduct the amount that exceeds the value of the gift or ticket.

Note: Limits on cash and non-cash charitable donations have increased or been suspended. Learn more about charitable deductions in 2021.

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Other Tax Relieving Options

If you can take steps to lower you tax debt to $50,000 or less, you can qualify for an IRS installment payment plan. If you have credit cards, particularly those that offer cash-back rewards, it might be wise to pay down your tax debt to $50,000 with plastic.

Racking up credit card debt that you cant repay within a month is often a bad idea, but if it allows you to avoid IRS penalties, it might work for you. Before using credit cards for taxes, make a budget so you know you can afford to make payments. You should also consider discussing your plan with a debt management or credit counselor.

Finally, if you enter an installment agreement with the IRS, make sure you make all payments on time. The IRS has little patience for those who dont stick to their agreement and it will quickly impose penalties and back interest on your tax debt.

About The Author

Ten Ways To Lower Your Taxes

By FindLaw Staff | Reviewed by John Devendorf, Esq. | Last updated December 08, 2021

Paying taxes, while a civic duty, isn’t always an enjoyable experience, mostly because of the complicated paperwork involved. However, that stack of papers could unlock considerable tax savings, with the proper planning and strategies. Here’s an introduction to some basic strategies that could help lower your taxes.

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How Do You File Back Taxes

If you’re behind on filing your tax returns and need to file for prior years, you can. Here are some things to remember:

• Gather your documents. You’ll need to gather tax documents for the tax year in question. For example, if youre filing your 2020 tax return, youll need your W-2, 1099s and any other pertinent documents from 2020.

• Get a transcript if you need one. If you don’t have those documents, you can request an IRS tax transcript for that year. Although you won’t get exact photocopies of the documents, you’ll get the information contained in those documents, which is what you’ll need to get your return done.

• Use the right forms. Don’t file a 2020 tax return using 2021 forms. Tax rules and tax forms are different every year. You can search for older forms and instructions on the IRS website.

• Don’t be afraid to ask for help. Many tax software packages allow you to file prior-year tax returns.

Deduct 529 Savings Plan Contributions From State Taxes

It may feel like your kids cost you an arm and a leg, but they can actually help you with your taxes. If college is on the horizon, nows the time to address how to pay for it and reduce your tax burden simultaneously. Open a 529 plan.

Even if you dont have your own kids to start a plan for, you can do so for nieces, nephews, friends, and grandkids. You can even open a 529 if you are going to go to college in the future.

Although contributions to 529 accounts arent tax-deductible at the federal level, the invested funds grow tax-free. Depending on the state you live in, you may be able to deduct 529 contributions from state taxes. More than 30 states and Washington D.C. either allow tax deductions or tax credits for 529 contributions.

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Forgive Yourself First Then Make A Plan

The first and most difficult step is understanding how you got here. When Valerie Rivera, a certified financial planner and founder of FirstGen Wealth in Chicago, works with clients, she helps them go through credit card statements to categorize purchases and look for spending patterns. That makes it easier to create a new spending plan that leaves room for debt repayment.

Heres why this part is essential: It takes you out of autopilot. You may have been making minimum payments on your debts because thats what you felt you could handle. And while that approach does allow you to avoid late fees and knocks to your credit scores, itll keep you trapped in debt for a much longer time. If you can shift your spending even slightly, you may be able to afford bigger payments.

If you have $10,000 in credit card debt at a 17% interest rate and you pay $150 per month toward your balance, itll take 17 years until youre debt-free. Thats assuming you dont add to your debt balance during that time. But if you were able to double your monthly payment to $300, youd spend $3,629 in interest and get out of debt in about four years.

If you have debt, youre normal. It is possible to get out of it and to face it, Rivera says. The number-one thing is to face it and give yourself grace in the process.

Chapter 7 Bankruptcy Liquidation

And finally, the seventh way that you might be able to pay less than what you legally owe. Filing chapter seven bankruptcy liquidation. Now in order to be to qualify, we’re talking about income tax, not trust fund taxes. For example, if you own a business and you withheld payroll taxes from your employees and didn’t pay them, those will not be dischargeable.

But ordinary income tax that was due more than three years ago can be discharged in chapter seven. Now, if the IRS has filed a lien, then the lay would survive bankruptcy. But generally speaking, after after you vote your income tax for three years or more. And so long as they’ve been assessed 240 days, there are dischargeable in bankruptcy, like innocent spouse related. I mentioned a while ago, this is a lot more complex topic, but sometimes taxpayers qualify for that. So this information interest you and you’d like to have a free consultation, call or fill out the contact form below and I’ll talk to you soon,

Tony Ramos

If you are dealing with stressful IRS problems and have over 15k in IRS tax debt. And if you would like us to deal with the IRS for you, contact us today to request a free strategy session. Attorney Ramos will evaluate your case and create a personal resolution plan.

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Request An Installment Plan

The IRS may let you pay off your tax with installment payments. You cant do this every year, but it works when a hefty tax bill takes you by surprise.

The IRS must let you make installment payments if the total amount of tax, not including penalties or interest, is $25,000 or less.

You must show the IRS that you cannot pay the entire amount when it is due and that youll pay off the tax within three years under the installment agreement, and you agree to comply with the tax laws while your agreement is in effect.

In addition, you must not have not failed to file or pay your taxes or had another installment agreement with the IRS within the last five years.

The IRS may let you have an installment agreement for a tax bill over $25,000 if you can show that you can make the payments.

Youll generally pay a $43 fee to set up the plan, plus interest and penalties.

Irs Currently Not Collectible Status

If you cant afford to pay what you owe the IRS, you can request that your account be placed in currently not collectible status.

While your account is under that designation, the IRS wont try to collect your taxes. However, penalties and interest may continue to accrue, and your debt wont go away. If you find youre due a tax refund while your tax debt is on hold, the IRS will apply it to the amount you owe.

To qualify for CNC status, you must file any past due tax returns and provide the IRS with financial information, including details about your income and expenses.

Once your account is labeled as CNC, the IRS will review your finances annually. If your financial situation improves, the IRS may try to collect the balance owed. Generally, the tax agency has up to 10 years to collect taxes due.

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Ask For Assistance In Filing For Bankruptcy

At times, filing for bankruptcy is the best course of action to take when you owe a significant amount of tax debt.

You should never go through this process without the help of the best tax attorney you can afford. Theyll advise you on whether you should look into Chapter 7 bankruptcy or Chapter 13 bankruptcy, both of which could help you relieve your tax debt and build your financial life again.

Dont think of this as a loss. Filing for bankruptcy can actually be the best thing to happen to your financial life if you find yourself in desperate straits. By getting the IRS off of your back, you will be able to alleviate your tax burden and buy some time to rebuilding your financial life piece by piece.

Keep Accurate Tax And Financial Records

The ATO is far more likely to ask a lot of questions about your tax deductions than they were a few years ago. If they ask about your deductions, youll need to show them receipts for tax deduction claims. Unfortunately, not having a sound filing system can cause a lot of headaches for your tax time. So many Australians miss deductions they can legally claim because of a lack of sound record keeping. If you make this mistake, the ATO will keep your hard-earned money that should have stayed in your pocket.

Many people wonder if they have to keep track of every single deduction. But the best thing to do when it comes to claiming deductions and satisfying the ATO is to keep track of the deduction receipts. This will make it easier for you to remember what you can claim. Record-keeping doesnt have to be complicated.

Dedicate ten minutes of your time each week to download statements and update your logbooks. Make sure you keep all your receipts in a conveniently accessed, organised, and easy-to-use file folder or filing cabinet. Keeping accurate tax records will save you a lot of time searching for everything at the end of the fiscal year, and best of all, youll be able to claim your deductions and ultimately pay less in taxes.

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Apply For An Installment Agreement

In case you cant pay your tax debt immediately, you can make monthly payments through anIRS payment plan also known as an installment agreement. Going this route will enable you to lower or eliminate any penalties or interest as long as you eventually pay off your debt in full.

Before you apply for an IRS tax payment agreement, confirm youve filed all your required tax returns. Follow these steps to apply for an installment agreement:

• Complete and mailForm 9465, Installment Agreement Request andForm 433-F, Collection Information Statement.
• Follow further instructions from the IRS.

We Know How The Irs Works

As former Senior IRS Collection Agents, Landmark Tax Groups professionals know how the IRS works AND how to protect you and your assets. Get step-by-step guidance that will answer all of your questions on having your IRS tax debt expire by .

If you would like us to review YOUR IRS tax case, contact Landmark Tax Group right now for an expert consultation!

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Max Out Your Retirement Contributions

The more money you can put into retirement accounts, the lower your tax burden. While you may not be able to enjoy that money now, at least you are not giving it away forever. Instead, it waits for you and grows in the meantime.

Your best bet is the 401 because the IRS lets you contribute without taxing that amount. It only taxes what is left over. If youre a freelancer or business owner then you can take a similar path by contributing to a SEP IRA instead of a 401. You can put up to 25 percent of your net income away, tax-free.

Another strategy for people under 50 is catch-up contributions. These let you give up to $6,000 to an IRA and $19,000 to a 401. If you happen to be over 50, then those amounts go up to $7,000 and $25,000, respectively.

Ways To Minimize Tax Debt

Even if you have outstanding tax debt, its important to reduce your tax liability by discovering how to pay less in taxes. One way to do this is by lowering your adjusted gross income. Your adjusted gross income is the amount thats left after you subtract certain allowed deductions from the income you earned during the previous year.

Your adjusted gross income determines which tax credits and additional deductions you qualify for that can further reduce your tax bill. For example, a married couple with one child and an adjusted gross income of $46,884 or less may qualify for the earned income tax credit.

You can lower your adjusted gross income by reducing your taxable income. This includes taking advantage of certain tax credits and deductions available to you.

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