What is tax debt settlement?

One of the most common forms of debt is tax debt. There are many reasons why people wind up owing money to the IRS, including improper filing and late payment penalties. If you owe more than you can pay, tax debt settlement may be the best option for you.

Tax debt settlement is similar to other forms of debt settlement. You negotiate with the IRS to reduce the amount you owe. The IRS would rather have some of that money than none of it. Tax debt settlement is a pragmatic solution that benefits both the government and the individual. You do not need a middleman to negotiate with the IRS. Some people feel intimidated by the complexities of tax law and prefer to have someone else handle the paperwork.

There are many companies offering tax debt settlement services. Some of these companies promise much more than they can deliver. Be wary of anyone making claims that sound too good to be true. They probably are.

How much can you save?

If you want to reduce your tax debt, you will have to file an Offer in Compromise with the IRS. In doing so, you offer to pay less than what you owe.

Companies that handle tax debt settlements promise that you can pay pennies on the dollar. This is rarely the case. To pay a reduced amount, you must prove that this amount is equal to or more than what the IRS could potentially collect from you in the next 24 months.

The IRS also charges a fee of $150 for filing an Offer in Compromise, unless you are living below the poverty line, in which case the fee is waived. Only 16% of offers are accepted, so no matter what your lawyer promised you, it’s not a sure thing.

What happens if you don’t pay your taxes

You will not go to jail for failing to pay your taxes. But there are other things that the IRS can do to strongly encourage you to comply. Missed payments equal interest and penalties. If you’re having trouble paying your current balance, the penalties will make it even harder for you to clear that debt.

The IRS can garnish part of your wages directly from your employer. They can impose a tax lien, which will make it nearly impossible for you to borrow money. The tax lien will stay on your credit report for 10 years, destroying your FICO score. If you still refuse to pay, the IRS can seize the money from your bank account. This is known as a bank levy. Your account will be frozen, the money handed over to the IRS. The IRS can also take your pension, your 401(k) and any other form of savings. If you own your house, they can even take that.

The IRS can be very persuasive when it comes to collecting the money that owed to them. It’s better just to pay.

What you need to apply for an Offer in Compromise

* You will need to fill in Form 656 and Form 433-A.
* Use the Form 433-A Worksheet to calculate your offer.
* If your offer is accepted, you must pay the amount that you offered, either as a lump sum or over a short-term payment plan.
* For the next five years, you must file your tax return on-time and make the necessary payments, or the offer may be revoked.
* The IRS gets to keep any refunds of credits that may have been due to you in the year that you filed the claim.

What is tax debt settlement?

How much can you save?

What happens if you don’t pay your taxes

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