What is Tax Relief and How Does it Work?

Navigating the wide world of taxes has long been a perplexing and arduous process that few feel comfortable handling on their own, and that’s ok! Tax relief services and professionals like certified public accountants (CPAs) and enrolled agents (EAs) exist to understand and stay abreast of the rules governing taxes so you don’t have to.

According to the US Government Accountability Office (GAO), 21% of Americans owe money to the IRS. These are taxes that went unpaid — either partially or fully — in the year they were due.

While it won’t erase the amount of taxes you owe and your obligations, tax relief can help alleviate your tax burden by reducing the amount of taxes owed to the IRS. It can come in a few different forms, such as a tax credit, deductions, or tax forgiveness, but it essentially consists of programs created by the IRS to decrease your tax bill.

Getting Tax Relief

If you’re having trouble paying your taxes when they’re due, there are a few ways to get IRS tax relief. Below are the most popular avenues to consider.

Offer in Compromise
This type of tax relief is a sort of negotiation or compromise with the IRS for those struggling to pay their full tax liability or if doing so creates a financial hardship. It’s a legitimate way for you to settle your tax delinquency for less than what you owe and it takes into consideration a few factors, such as your income, your asset equity, and your overall ability to pay.

To ensure you’re eligible, all required estimated payments and tax returns must be made along with the application fee. You’ll also need to fill out a Form 433-A (individuals) or a 433-B (businesses), and a Form 656 along with all necessary documentation.

IRS Repayment Plan
Another strategy for tackling tax is the IRS Repayment Plan. This allows you to break down the full amount you owe into smaller and more manageable payments while avoiding levies and garnishments. You’ll still be on the hook for interest and penalties for being late until you’ve paid off your balance in full.

This type of tax relief is either short-term (payments made over the span of 120 days or less) or long-term (payments made over the span of 120 days or more). A short-term payment plan is only for individuals, not businesses, and won’t be liable for a user fee. The most you can owe with a short-term plan is $100,000 in combined taxes, penalties, and interest.

A long-term plan has fees and the most you can owe is $50,000 in combined taxes, penalties, and interest.

Penalty Abatement
If a hefty tax bill you can’t pay isn’t enough, there can also be penalties and interest that are piling up and from which you may need relief. Penalty abatement is a form of tax relief meant for those with special circumstances that have led to an inability to pay taxes, such as experiencing a natural disaster, hospitalization, serious illness, or other uncontrollable circumstances. This is known as reasonable cause penalty abatement.

There is also a first-time penalty abatement, which is the most widely available type of IRS waiver. If you don’t have a track record of tax penalties and not filing your taxes on time in the past, the IRS may qualify you for a first-time penalty abatement where they will waive your penalties.

Every day your bill goes unpaid, the IRS will tack on a substantial amount of fees and interest for each day the amount owed goes unpaid. So it’s worth seeing if you qualify for penalty abatement.

Tax Relief Companies: Are They Worth It?

In short, yes. Tax relief companies not only provide guidance on the harrowing and complex process of tax relief but they can help lower what you owe substantially. Tax relief services are comprised of licensed tax professionals who are well-versed in navigating the maze of IRS rules. Typically through a free consultation and financial analysis, they can determine which tax relief program you qualify for and help you through the process from start to finish for a fee. Additionally, tax relief companies can provide guidance on IRS audits and even go to court or communicate with the IRS on your behalf.

The key is to find a reputable tax relief company to work with and avoiding scammy businesses. While there are legitimate firms that will require an upfront fee, there are also companies that will try to scam taxpayers by making unreasonable promises to eliminate their tax owed for an upfront payment. So how do you know who is legit?

The best way to ensure you’re working with a reputable tax relief company is to look at online reviews and testimonials, and make sure the staff consists of licensed tax attorneys. A reputable business will offer a free consultation and won’t make any promises or guarantees to solve your tax problems.