For Texas Tax Payers: Tax Resolution Options If You Owe $10K or More to the IRS

Tax Resolution

Owing the IRS means more penalties and fines if you do not come up with a payment plan. You may also lose control of your assets if the government seizes them or impose a tax lien. If you have a debt of more than $10k, you may wonder how to repay it without straining your finances.

Read on to discover several options you can explore and their eligibility criteria. We will also cover each tax relief option's terms and suitability for various conditions.

Installment Payment Plan

One way to deal with tax debt is by setting up an installment agreement plan. This way, you can pay a specified amount for a given period and avoid accumulating penalties.

Apply for an installment plan online and pay a setup fee of $31. Alternatively, submit your application physically or by mail for a $107 charge.

Once the IRS receives and reviews your application, you can agree on a reasonable repayment plan. A short-term installment program is suitable if your total debt is less than $100k. On the other hand, a long-term agreement is ideal for debt that is not more than $50k.

The eligibility criteria for installment payment plans will depend on specific programs. Still, you must meet some basic requirements such as:

  • You filed all past returns
  • You cannot pay the total amount once
  • You do not have a current bankruptcy filing

Applying for an installment agreement plan will allow you to stop IRS debt collection measures. Further, you can qualify for other forms of credit like mortgages.

An Offer in Compromise (OIC)

If you cannot pay your entire tax liability due to severe financial problems, you may qualify for an offer in compromise. This program allows you to settle the debt for an amount lower than the actual value.

Submit an OIC application if you filed all past returns and submitted the estimated payments. You can also request consideration if you have a valid extension for the current financial year returns.

When the IRS receives your OIC application, they will review it and evaluate various factors. Such include your ability to pay and asset equity. They will also verify your income and revise your expenditure for a given period.

Before the IRS approves an offer in compromise, you will submit an initial payment in a lump sum. This is often 20% of the total amount you owe. If the IRS accepts your offer, they will send a confirmation letter. The document will include guidelines on clearing the balance in five or four installments.

Filing a Currently not Collectible Status

If you cannot cover living expenses and pay a tax debt, you may file a currently not collectible status. This program allows taxpayers to stop the IRS from using debt collection measures. Such may include wage garnishment, seizing assets, or freezing accounts.

When applying for this tax debt relief program, the IRS will require information about your expenditure and income. They will also need you to fill out a Collection Information Statement.

Filing a currently not collectible status is only suitable if you are in a severe financial crisis. This is because the program only delays the IRS from collecting what you owe. Still, the penalties and fines will accumulate until you can pay fully or apply for a different debt relief plan.

How to Identify the Most Suitable Tax Resolution Option

Identifying the best tax resolution plan can be tricky due to several options. Consulting an expert will help you evaluate your choices and eligibility for each program. Further, it ensures you organize your documents and file past returns before applying.

Get Tax Resolution Services in Texas

Seeking professional tax resolution services will help you determine how to deal with debt. Moreover, it protects your finances and allows you to avoid significant penalties.

At FinishLine Tax Solutions, we help Texas taxpayers that owe the IRS set up payment plans. Our professionals will ensure you pick a relief program suitable for the debt amount and your financial situation. Call us now if you owe the IRS $10k or more.

Why Hire a Tax Professional?

WHY HIRE A TAX PROFESSIONAL?

Filing back taxes can be both tedious and confusing, especially for non-professional who don’t customarily stay up-to-date with tax code changes. There are many tax laws, and all must be accounted for each time you file to avoid hefty fines or interest on unpaid tax. However, taxes are as inevitable as death, and unfortunately, ignorance is no defense where they are involved.

This is why some people choose to enlist the services of tax professionals or tax preparers during filing season. Apart from that, a helpful tip is to stay prepared for filing by ensuring you keep your bills and receipts for deductible expenses, especially if you run a small business.

If you’re wondering what the value of a qualified tax professional, below is a list of benefits you can enjoy from their services.

Saves Time

According to the IRS, the average consumer spends 13 hours to file their tax returns, although some estimates quote as high as 24 hours. If you’ve tried to do your own taxes, you have probably taken longer than one day to do it, especially if you have a small business or rental income to report.

Assuming your time was worth $20 per hour, you are easily spending $260 and above to file. Because you aren’t conversant with this process, you spend double or triple the amount of time a tax professional would take. The tax preparer works efficiently and does the correct thing on the first try, saving a ton of time and effort.

Cost is Tax-Deductible

If you itemize your expenses, the cost of hiring a tax relief specialists is a deductible expense on Form 1040. Therefore, you end up paying less tax because of this deduction.

Reduces Complexity

As mentioned, filing taxes is a difficult and complicated process. For the average consumer, there are hundreds of details to consider, and it’s very easy to make a costly mistake. What’s more, the Tax Code is updated annually, and you may not be aware of how such changes affect your next tax returns. This gets even more complex if you did any of the following:

  • Lost or made money in investments
  • Started or sold a small business
  • Sold or bought a capital asset
  • Bought or sold real estate
  • Changed your marital status
  • Changed your residence so that your income and residence are now different

A tax professional handles tax matters on a daily basis. They stay abreast of all tax codes and how they affect various consumers. Therefore, they are best placed to advise you on the impact of these changes and how you should file your next returns. Should you choose to do it yourself, always check how such changes affect your next returns.

Finds Relevant Deductibles and Credits

There are tax-deductible expenses and tax credits that most taxpayers qualify for, but the system and common tax software may not be updated on them. Therefore, you lose precious money and end up overpaying your taxes when you don’t claim all your relevant deductibles and credits.

A tax professional is aware of the latest credits and deductibles and how they affect various individuals and businesses. Therefore, he/she can ensure that you take advantage of them to reduce your payable taxes. If you have overpaid in the past, he/she can also help you to file amendments and request for refunds.

Assistance with Audits

Finally, should you ever be audited, a tax professional can work with you and your business to get the relevant bills, receipts and documents to support your returns. He/she can represent you when dealing with the IRS to ensure that you are protected. While only 1 percent of taxpayers are audited, it is best to have a tax professional if you ever land in these murky waters.

Conclusion

Tax accountants and tax professionals are real people, which means you can defer to them with any questions or concerns you have. Before filing past taxes this year, talk to a tax professional and find out how they can help you wade the murky waters of taxation reporting.

IRS Fresh Start Program

People are usually fearful of the IRS. A letter from the IRS is enough to fill them with fear, especially if they have an unpaid tax bill. They might end up in debt to the IRS and think that there is no way out of this. Thankfully, the IRS Fresh Start Program to help the taxpayers with tax resolution. Even if you have owed a debt for years, this program can help you get the tax relief.

The IRS Fresh Start Program is a tax resolution option from the IRS. The program makes it easy for taxpayers to pay their tax debt without having a levy on their assets. This is not a new initiative. It has been in place for several years. The program started in 2008 to help the taxpayers during the recession. In 2012, thanks to the changes introduced by the IRS, it became easier for the taxpayers with financial hardship to get their tax debt reduced.

Recently, the program was expanded to help people who are struggling with their tax debt. The IRS had made changes to their tax code for alleviating tax bills and helping out the taxpayers. The aim of this program is to provide tax resolution options to taxpayers. It allows them to pay back their debt without any excess fees of liens. The IRS might even forgive a certain amount of past debts or eliminate penalties for late fees.

Eligibility criteria for the IRS Fresh Start Program

  • Owe $50,000 or less money in tax debt.
  • Self-employed individuals who had a 25% or more drop in their gross income.
  • Married couples who are filing joint-returns must have income less than $200,000 in a year. In this case, the amount earned by an individual taxpayer should be less than $100,000. 

Repayment options offered through the IRS Fresh Start Program

Extended Installment Agreement

This tax resolution option reduces the fees and penalties imposed on the taxpayers. However, this need not be confused with the regular payment option.

The regular payment option is for taxpayers who are unable to pay their tax debt before the deadline, but the extended installment agreement is for taxpayers who are unable to pay penalties and other fees associated with debt before the deadline. 

There are two forms of installment plans. 

The first one is the short-term plan that is available without any fee for late payment. Also, there won’t be any fee for setting up this installment plan. These are for a period of 120 days and have penalties associated until the complete debt is paid off.

The second form is the long-term installment plan that will include some setup fees. It will depend on whether the payment is made by the taxpayers or if it is deducted automatically for the bank account.

The Fresh Start Program offers different tax resolution payment arrangements like stair-step, partial-pay, debt installment, or streamlined installment agreement. Now even though there are arrangements available, all taxpayers have to negotiate directly with the IRS for determining whether they are eligible for this or not. Depending on this, they might have to pay a certain amount over time through monthly payments. Regardless of the plan approved by the IRS, you have to ensure that every installment is paid in full and on time. Failure to do so will nullify the arrangement. 

It is important to know that these payments are accompanied by a fee. In cases of debt of $50,000 or more, it requires taxpayers to submit Form 9465 and Form 433-F via mail or in-person.

Offer in Compromise

If you are unable to pay off your debt in full, there is an Offer in Compromise option offered by the IRS. For this, you will need the help of tax experts.  Getting the IRS to agree to let you pay a reduced amount is a tricky process and requires the help of tax experts. There are several tax resolution services that can help you negotiate with the IRS.

To get your request for an Offer in Compromise accepted, you’ll have to prove to the IRS that paying their taxes will result in financial hardship. 

To determine whether you are qualified for this tax resolution option, the IRS will be checking your current and future income and expenses. Also, the IRS will first determine if the reduced amount from the offer in compromise is more or at least equal to the amount they expect to receive from the taxpayer through the collection actions. 

Here are the three criteria that can determine your eligibility:

  1. Credibility

If the IRS thinks that they won’t be able to get any money from you through collection actions, they might accept your ‘offer in compromise’ request. If they think that you have assets that might get them a higher amount of money, they won’t accept your OIC. Please note that a levy on a lien can impact your credit score, affecting your ability to buy any assets or apply for a loan.

2. Liability and accuracy

This includes proving that you don’t owe the money the IRS is claiming. If you think that there was an error during tax preparation, IRS might agree to let go of the initial owed amount and take your offer. For this, you need to take the help of tax resolution services.

3. Effective tax administration

When the IRS believes that paying the complete amount will lead to severe financial hardship for you, they might accept your offer in compromise.

IRS very rarely accepts the Offer in Compromise. To make sure that you even have a slight chance at this tax resolution option, you need the help of tax experts. Once your offer is accepted, all the payments should be made in time. Failure to do so will nullify your OIC, and you will have to pay the complete amount.

Tax resolution is a way to make the process of paying taxes easier for people undergoing hardships. However, if you earn well and have assets, the IRS won’t be accepting your request. If you are going through a financial hardship, you need the help of tax resolution services to help you get back on your feet.

IRS audits Most common questions

No matter how honest and diligent you are, an IRS audit can send shivers down your spine. The reason for this fear is that most people believe that IRS audits will include a team of agents knocking at their front door and confiscating everything in their house. While this is also a possible situation in extreme cases, mostly, the audit will include agents checking your financial statements and ensuring that you haven’t been reporting incorrect information on your tax forms. So, unless you are over-reporting deductible expenses or reporting less income, you don’t need to worry about IRS audits.

Here are some of the most common questions asked about the IRS audits

I always make sure that my tax forms are filed without any errors? Why would the IRS still audit me?

The process of selecting a taxpayer for an IRS audit does not mean you have made an error. Many returns are randomly selected through an automated process when the 1099s and W-2s don’t match. In some cases, they are a result of an amending oversight. However, there are some red flags for the IRS. For example, large business expenses or charitable donations can raise eyebrows. 

Is the IRS audit affected by the amount I earn?

Yes, but only if you are earning is in millions. For example, if you earn more than $200,000 annually, there is a 1% probability that you will face an IRS audit. However, this probability increases when you earn more than $1 million.

Will I be notified of an IRS audit beforehand?

Yes, the IRS will send you a notice of the audit via mail.

What are the different types of IRS audits?

There are three types of IRS audits. 

The first one is the correspondence audit. In this audit, you will have to back up the claims made on the returns by sending additional documents. This can include mileage logs for travel, canceled checks for charities, and receipts. 

The second type of IRS audits is the in-person audit for which you will be summoned to the office of the federal agency. 

Lastly, there is a field audit. This form of the audit will be your worst nightmare. IRS agents will be visiting you at home or office and check all the tax-related documents. 

What happens when I ignore the notice of the audit?

Ignoring the notice of the IRS audit won’t make the IRS go away. Instead, the IRS will begin to think that you are hiding something. It can force the IRS to investigate immediately and impose fines or penalties. They can even get a court order to force you to cooperate. So, after you have received the notice, it is best that you respond within 30 days. 

Can the IRS only audit my last filed tax return?

No, the IRS has 3 years for pursuing an audit. So, just because the year has passed, it doesn’t mean that you are off the hook. It is possible that you receive a notice for the 2018 returns in 2020. This is why it is recommended that you keep all the tax-related documents for 3 years.

What documents do I need to provide during the IRS audit?

You only need to submit the documents requested by the IRS. If you bring anything unnecessary, it might broaden the audit’s scope. If the IRS has asked for some unaccounted paperwork, try tracing your steps. In cases of charitable donations and medical expenses, you can easily get duplicate copies.

Do I need to have tax experts present during the IRS audit?

Having tax attorneys is not mandatory during an audit. However, having a tax attorney by your side can make the whole process a lot easier for you. Hire an attorney through tax resolution services, and he will do the rest. 

After you’ve hired tax experts, you should let them do the talking. If you volunteer extra information, it can open up another investigation and compromise your advantage. 

What will be the duration of IRS audits?

The duration of IRS audits can vary. However, tax experts recommend that you set aside a complete day to deal with the audit. 

The duration of the audit will depend on a number of factors, like how organized your financial records are or how complex the issues are. In case the IRS wants more time or wants to have a follow-up meeting, you will be notified. If you want an audio recording of the proceedings, you have to give a 10-day notice to the IRS.

What penalties might I be liable to pay after the audit?

If the IRS decided that you have underpaid taxes, you might face either one of the following penalties:

  • If the IRS finds an underpayment because of undervaluation or overvaluation of the property, understating tax liability, neglecting, or disregarding rules and regulations of the IRS, you will be facing a 20% penalty.
  • For cases of serious underpayments that are related to fraud, you might face a penalty of 75%. If this is the case, it will be your responsibility to prove otherwise.
  • For all the violations made because of negligence, fraud, and not filing returns on time or valuing the property incorrectly, you might face interest payments. It will start from the due date of the return.
  • In severe cases of tax evasions, you might even face prison. 

Can the outcome of IRS audits be appealed?

If the IRS has imposed a penalty on you and you are not satisfied with the audit report, it is possible to appeal to this outcome. You will have to send an appeal letter to the IRS within 30 days after the audit proceedings ended. If the IRS denies your appeal, you can file a petition in the tax court for bills worth $50,000 or less. For the amount more than that, you will have to knock on the door or a regular court. 

For cases of IRS audits it is best that you hire tax experts from tax resolution services. An attorney will help you put a strong foot forward. There are a number of tax resolution services in the US that can help you with your tax-related issues. IRS audit can be a complicated process with extreme outcomes. However, as long as you abide by the law, you won’t have to worry about anything.