Many people feel a sense of excitement when tax time rolls around each year. In fact, around 83% Americans expect a tax refund every year – and those refunds average over $3,000! But if you’re one of the Americans who owes taxes to the IRS, you may be looking at options for tax debt relief.
Tax debt is very stressful. You may have your paycheck garnished, or your bank account frozen. In some cases the government may even put a lien against your home or your business. Tax debt relief companies advertise an easy way to eliminate your tax problems, and some may even promise a refund.
Are tax debt relief companies a good idea? What is it that these companies can do for you? Here’s what you need to know about tax debt relief.
What Do Tax Debt Relief Companies Do?
You may be in debt to the IRS for a number of reasons. You could have simply forgotten to file your taxes on time one year. It’s also possible that you calculated your taxes incorrectly. Maybe you took a deduction you shouldn’t have. Or, it’s possible that you simply couldn’t pay your tax bill when it was due in April.
Whatever the reason for your tax debt, owing the government money is a very scary, very serious thing. Tax debt relief companies take advantage of your emotion, offering plans which will either wipe you free of tax debt or to negotiate a settlement on your bill.
You’ll see these companies advertised online and on television (particularly around tax season) and you may even get unsolicited emails or phone calls from these companies. Some will tell you they can wipe clear your debt and even get you a tax refund.
In theory, these companies work with the government to eliminate the anxiety your debt is causing. They’ll charge you an initial fee, sometimes thousands of dollars, and promise to apply to government hardship programs on your behalf. Some will continue to deduct a monthly fee for their services.
So are these companies legitimate?
Should You Consider a Tax Debt Relief Program?
In short, there’s nothing a tax debt relief program can do for you that you can’t do for yourself. These companies aren’t always on the up and up, either. Many complaints have been filed with the FTC against tax debt relief programs, including complaints of:
- Selling personal information to others
- Deducting unauthorized amounts from bank accounts
- Guaranteeing results that aren’t delivered
- Incurring additional tax penalties
Not all tax debt relief programs are scams. We’ll take a look at how you can find a legitimate program later in this article. However, it’s fair to say that most companies that offer tax debt relief options to consumers are for profit, and will be of little help to you.
The absolute best way to settle or negotiate your tax debt is simply to call the IRS. Many taxpayers fear that if they “turn themselves in” to the IRS, they’ll face jail time or worse. That’s just not true. Unless you’ve cheated on your taxes, it’s extremely unlikely that the IRS will impose jail time or similar consequences.
The IRS has a vested interest in working with you to pay down your tax debt. Simply stated, they want their money. Even if they get it five dollars at a time, the IRS would rather get some money than none at all.
Do-It-Yourself Tax Debt Relief
As mentioned, the best and easiest way to settle your tax debt is just to call the IRS. Whether you owe money to the Federal government or it’s the state that’s sending you letters, calling the government isn’t as scary as it seems. In fact, the worst that’s going to happen is you’ve to wait a while on hold.
When you call, you’ll have to have a bit of information available. Know your social security number, your monthly and your annual income and how much you owe the government. You’ll also need to know your filing status – whether you filed single, jointly or head of household for the year in question.
As you speak with your representative, he or she will be able to offer you a few options. The first of these is very simple – it’s an installment program. If you can demonstrate financial hardship (which can be as simple as telling them your income) you may qualify to pay as little as $5 per month until your debt is resolved.
The second program you may be eligible for is an Offer in Compromise. Now, not may taxpayers actually qualify for this, but there’s no harm in asking your representative. An Offer in Compromise is a settlement amount you’ll pay which is considerably less than the debt you owe. For instance, a $5,000 tax bill could be settled for as little as $2,500.
If you don’t qualify for the Offer in Compromise, don’t worry. You can also set up a monthly payment plan online for the current year. Just go to the IRS website and register to set up an online payment agreement. Choose an extension of time to pay, or choose to pay monthly. Doing so may help to save on interest payments and tax penalties.
Finding a Legitimate Tax Debt Relief Program
Let’s face it – some people just aren’t born negotiators. And while the IRS is easier to deal with than their reputation suggests, you may simply prefer to hire someone else to handle the dirty work for you.
In that case, it’s important that you find a reputable group to help you settle or negotiate your tax debt. The easiest way to do this is to hire an attorney. Find a tax attorney who is licensed to practice law in your state. Check his reputation out, both with the state bar and with clients who have used the service.
You can also hire a certified public accountant who specializes in tax work. CPAs and professionals called Enrolled Agents can help you work with the IRS to pay down your debt.
For optimal financial safety, don’t hire a firm that you find online or on a television ad. More times than not, these are scams. It’s best to either take a DIY approach to tax debt relief or to hire a certified and licensed professional to help.