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If you are unable to pay your taxes on time, don’t worry — you are not alone. Over five million Americans require some type of alternative payment option each year. The IRS offers four alternatives in these cases: an extension to pay over a period of up to 120 days; payment plans allowing you to pay your taxes over time; Currently Not Collectible status for those who demonstrate financial hardship; and an Offer in Compromise, wherein the IRS can settle for an amount less than what is owed.

Fortunately, a payment alternative is available to those who qualify and contact the IRS to request it. Moreover, the current interest rate on these plans is a low 3%. Ignoring the taxes you owe is not advised, as the IRS may take more severe measures such as garnishing wages or levying one’s bank account. A federal tax lien could additionally be issued, negatively impacting credit and making it hard to sell a property or get a loan.

Is it Necessary to Pay My Taxes in a Single Payment?

No. If you are unable to pay your taxes on time or in full, you can still work out a solution with the IRS. To begin with, file your return and pay as much as you can. The IRS will then send you an invoice for the remaining amount, charging you with interest and a late payment penalty. If your bill is under $50,000, you can request an installment agreement by filling out the payment agreement form online. You can also file Form 9465 or charge the total to your credit card.

What Occurs When You’re Unable to Pay Your Taxes?

After you’re done with your taxes, you may not be feeling too great if you owe the IRS a considerable amount. You may feel disbelief that such a thing even happened, then frustration as you realize the taxes you have to pay. Questions may arise like, how much time do I have to pay? Or is there a chance I could go to jail? Take a moment to relax and know that you’re fine and jail time isn’t an option here.

Failing to file taxes or attempting to evade the Internal Revenue Service is not the answer; it will only add to fines and penalties. With our help, even the most serious of tax debt can be managed, and we can help you ensure it never happens again.

Steps to Take When Unable to Pay Your Taxes

When you realize you can’t pay your taxes, the first step is to take action. Acknowledge that you owe taxes but don’t have the money to pay them back. Don’t let fear take over or jump to conclusions. Follow these simple steps to address the issue.  

Step 1: Submit your tax return by the regular deadline, even if you’re unable to pay the taxes owed promptly.

It’s essential to enlist the aid of a seasoned tax professional as soon as possible in order to file your taxes. Not only can they identify potential credits and deductions to reduce what you owe the IRS, but every dollar matters when you owe the government.

You may delay filing your taxes, assuming you’ll save money, but the penalties for not filing or filing late could be a lot higher than the penalty for not paying on time. Understand that even if you file your tax return in February or March, the due date doesn’t come until before Tax Day. This gives you two months to gather the funds needed to make your payment.

When considering an extension, bear in mind that it doesn’t provide an extension of the amount due. An extension only affords you more time to submit your tax return. However, if you wait too long to settle the amount due, you’ll be subjected to interest and penalties on unpaid taxes. Don’t forget to make sure you file on time!

Step 2: Settle as much of your tax debt as possible by the due date.

When owing a large amount on taxes, like $15,000 or more, it can be difficult to come up with the necessary funds before the due date. To avoid penalties and interest, consider selling items around your home to come up with the extra money. If you find yourself unemployed, prioritize essential needs such as food, utilities, shelter, and transportation before all else. After you have provided those basic necessities, pay whatever you can afford towards the tax bill.

Step 3: Continue making payments on your tax debt even after filing, and discuss a payment plan with the IRS.

After Tax Day, you’ll have a month or two before the IRS contacts you about the remaining taxes owed. During this period, prioritize paying off the tax debt with every dollar available. If you’re unable to clear the bill by the time the IRS contacts you, apply for a payment plan via the IRS website. 

The IRS offers short-term plans of 120 days or less if the bill is under $100,000, and long-term plans under $50,000 with an associated setup fee. This fee may be waived for those classified as low-income earners. With the right plan and motivation, you can pay off your tax debt in a timely manner.

Step 4: Address the issue to prevent future unmanageable tax bills.

After making a mistake with a miscalculation of income, resulting in owing a few thousand dollars at the end of the year, one should collaborate with a trustworthy tax expert to ensure an unaffordable tax burden is not faced in the future. This could involve setting aside profits from a side business, making quarterly tax payments, or adjusting paycheck withholding. 

The right tax professional will be able to identify the issues and assist with resolving them moving forward. To make this easier and avoid complications in the future, it is beneficial to collect the necessary paperwork from the start. 

Consequences of Not Filing Your Taxes

Failing to file a tax return when you owe taxes is an illegal action with significant consequences. The IRS imposes a Failure to File Penalty amounting to 5% of unpaid taxes for each month the taxes remain overdue, with the penalty maxing out at 25% of the total tax bill after five months of not filing. 

On top of this, the IRS will add interest to the penalty. In extreme cases where a taxpayer continues to neglect to file a return, imprisonment could be enforced; however, the IRS usually seeks alternative solutions to resolve any issues with a taxpayer before bringing on jail time. Thus, it is essential to file your tax return on time to avoid any of these penalties.

Paying Your Taxes Late

When it comes to submitting your taxes, the adage “better late than never” certainly applies. Filing your tax return, even if you cannot afford to pay the full amount, will put you in a more favorable position with the IRS. It’s best not to wait for the IRS to discover your oversight. By filing, you’ll also benefit from reduced penalties and interest charges.

If your finances are in difficulty due to the loss of a loved one or job, you may ask the IRS to classify your due balance as Currently Not Collectible. This delays payment and halts collection efforts, though interest and penalties will still add to the amount owed until it is paid. Additionally, an Offer In Compromise (OIC) may be proposed — this proposes a realistic payment rate to the IRS, ultimately reducing what is owed and allowing debt resolution. The IRS calculates income, expenses, assets, and other considerations to decide if the offer is acceptable.

It’s important to note that the chances of qualifying for an Offer In Compromise are relatively low. OIC approvals are uncommon, and typically, only those in dire financial situations are granted this form of tax relief.

Is it Possible to Face Jail Time for Failing to Pay Taxes?

Though it’s unlikely you would be sent to jail for not paying your taxes, there can be some serious consequences. The IRS can take several enforcement actions against you, including garnishing your wages, levying your bank account, placing a lien on your property, or seizing your assets.

However, if you intentionally concealed significant income sources, lied on your tax returns, or failed to file a return to avoid taxes, you could be charged with tax fraud or tax evasion. You may face three to five years in jail for these offenses, depending on the severity of your actions. Don’t be like infamous gangster Al Capone who served eleven years in prison for tax evasion (the only crime the FBI could successfully charge him with).

5 Alternatives for Individuals Unable to Pay Their Tax Debts

The anticipation of receiving a tax refund can make the process of filing taxes enjoyable. However, if you believe you might owe the IRS money that you cannot afford, initiating the process can be daunting. If you’re delaying filing due to concerns about tax liabilities, it’s essential to know the available tax relief options. Here are five methods to seek assistance with your tax debt:

1. Contribute as much as possible.

Regardless of the amount you owe, it’s essential to either file your taxes on time or request an extension if you cannot meet the deadline. While an extension grants you additional time to file your taxes, it does not extend the deadline for payment; however, neglecting to file an extension can result in severe penalties. 

If you fail to pay your taxes, the IRS will charge interest on the outstanding amount. Although you may not be able to cover the entire tax bill, paying a portion of it will reduce the interest accrued on the remaining balance.

2. Explore the option of an IRS payment plan.

An IRS payment plan, also known as an installment agreement, enables you to settle your tax debt over an extended period. You can apply for a short-term or long-term payment plan based on the amount you owe and your estimated repayment timeframe. 

Be aware that a payment plan will involve interest and penalty charges. Additionally, there may be processing fees for using a debit or credit card and a setup fee. However, the IRS may waive application fees for low-income applicants who meet the eligibility criteria.

3. Submit a request for an Offer In Compromise.

An Offer In Compromise allows you to settle your tax debt for less than the full amount owed. The primary advantage of an OIC is paying less than the actual debt. Additionally, it helps avoid collection calls and letters from the IRS.

Applying for an Offer In Compromise is a lengthy process that requires extensive documentation to demonstrate your inability to pay the tax bill, a $205 application fee, and an initial payment toward your debt. While your application is under review, your payments and fees will be applied to your outstanding balance, which must be paid eventually, even if the IRS agrees to reduce it.

It’s important to note that the IRS rejects most of these applications. If this happens, your initial payment will likely be applied to your balance, and your application fee may be refundable under certain circumstances.

For those who meet the low-income certification requirements, the application fee and initial payment might not be necessary. Additionally, you won’t need to make monthly payments while your offer is being evaluated.

4. Request a Currently Not Collectible status.

For individuals unable to pay their tax bill, requesting a Currently Not Collectible status from the IRS is a potential option. This status temporarily postpones collection efforts until your financial situation improves. However, it is crucial to remember that this designation is temporary, and you will ultimately need to settle your tax debt. Additionally, the IRS can still file a lien against you while you maintain this status.

To secure a Currently Not Collectible status, you must complete a form and provide details about your assets, monthly income, and expenses.

5. Seek advice from a specialist.

In case you are uncertain about your available options, consult a tax professional before engaging with the IRS. Sometimes how to get tax debt relief is best determined by a tax professional after looking over your current circumstances. Request a consultation today. 

Let JJ Tax Group help you figure out how to get tax debt relief. What exactly do we mean by tax debt relief? IRS tax debt relief or forgiveness enables taxpayers with outstanding tax liabilities to decrease a portion of their debt based on their specific situation. Although tax debt relief is comparatively uncommon, it is not unattainable, and a professional must evaluate each case to ascertain the individual’s eligibility. 

The government has established an IRS debt forgiveness program that provides various alternatives for alleviating tax debt. This program assists taxpayers in navigating the intricate tax forgiveness process and establishing a suitable debt repayment plan. Read on for a brief synopsis of the IRS debt forgiveness program.

What is the Debt Forgiveness Program?

The IRS debt forgiveness program is a strategy established by the Internal Revenue Service to streamline repayments and provide resources and support to taxpayers who owe money to the IRS. Only specific individuals qualify for tax debt forgiveness, and each person’s financial aid requirements must be evaluated to determine eligibility. 

IRS debt forgiveness is applicable if the taxpayer can demonstrate severe financial hardship and has completed all prior tax returns. The IRS debt relief program helps avoid hefty penalties for late taxes. Tax debt forgiveness is also more advantageous for your credit score over time. As IRS debt forgiveness serves as an official method to arrange a debt consolidation plan, it will reflect more positively on your permanent record.

Who Is Eligible for the Program?

IRS debt relief is designed for individuals with a debt of $50,000 or less. For married couples, tax debt forgiveness is accessible if their individual income is under $100,000 or $200,000 combined. Self-employed individuals who have experienced a minimum of 25% income loss can also apply for the IRS debt forgiveness program. 

Regardless of your circumstances, your case must be assessed to determine your eligibility for the program. Tax debt forgiveness will be computed based on your specific situation, accompanied by a payment plan. There are various options available to decrease debts owed to the IRS.

How Does the Forgiveness Plan Work?

To obtain tax debt relief, you must apply and be accepted into an IRS debt forgiveness program. Once accepted, you need to agree to the terms of your specific IRS debt forgiveness program. The IRS will consistently evaluate your financial circumstances to oversee your tax debt forgiveness progress. You will be provided with an IRS debt forgiveness payment plan, which allows you to pay off the entire or adjusted amount in a lump sum or through installments.

What Is a Tax Shield?

A tax shield refers to a decrease in income tax resulting from claiming a permissible deduction from taxable income. For instance, since interest on debt is considered a tax-deductible expense, acquiring debt generates a tax shield.

Expert Facts About Debt Relief for Taxes

• Tax relief can aid in reducing the taxes owed to the IRS. 
• It might be possible to arrange a more budget-friendly payment plan with the IRS. 
• You could be eligible for an Offer in Compromise, allowing you to settle your tax debt for a lesser amount than owed. 
• Acquiring relief can take several months or even years, depending on your situation and the amount owed. 
• Collaborating with a qualified professional knowledgeable in tax law and experienced in dealing with the IRS is crucial. JJ Tax Group can help you get tax relief. 
• Numerous tax relief programs are accessible, so it’s vital to thoroughly research each option before determining the most suitable one for you. 
• If you don’t qualify for any tax relief program, alternative solutions include filing for bankruptcy or negotiating directly with creditors.

Is IRS Tax Debt Forgiveness Really Possible?

Although total tax debt forgiveness may seem like a myth, there are relief options available to reduce or eliminate your liability on an unpaid tax debt. While some misconceptions can be harmless distractions, relying on tax forgiveness fantasies can potentially disrupt your life. This may seem exaggerated, but if you’ve ever faced the IRS, you know the intensity is justified. 

Tax forgiveness, though appealing in theory, is not a tangible solution for your liability. However, there are several beneficial programs you might be eligible for that can forgive all or part of your liability. In your quest for a suitable solution, it’s easy to be misled by unscrupulous organizations promising everything — ultimately costing you valuable time and money. Focus on these basic, pragmatic resolution options to steer clear of going down the wrong path.

Tax Relief Solutions You May Qualify For

The Innocent Spouse Program

Based on your marital situation, the Innocent Spouse Program could be an ideal option. This program allows you to avoid responsibility for your spouse’s tax mishaps. In simple terms, if your partner incurred a liability due to errors in their tax return that you were not involved in and had no reason to be aware of, you can be exempted from sharing the tax bill. The IRS approves cases for eligible applicants who can provide legitimate documentation supporting their claims. Although this is not a forgiveness program, it ensures that the liability is placed on the responsible party.

Offer in Compromise

The closest option to tax debt forgiveness is the Offer in Compromise (OIC), which serves as a settlement agreement between you and the IRS. An OIC allows you to pay significantly less than what you owe to resolve your tax debt, which is a positive aspect. However, the downside is that very few individuals qualify for an Offer in Compromise, with typically less than 25% of applicants being approved for OICs each year. 

Moreover, there are drawbacks to requesting an OIC if you’re not approved. The statute of limitations on your debt (ten years from the date of assessment) gets suspended while you wait. In other words, if the IRS takes a year to review your request and denies it, that year is added to the life of your debt.

Additionally, you must disclose detailed financial information during your request, which could potentially backfire if the IRS determines that you have the capability to pay your debt through means such as liquidating assets or borrowing against a retirement account.

Currently Not Collectible

There is a possibility that you may not have to pay the IRS anything at all. If you genuinely cannot afford to repay your tax debt, you can request to be deemed Currently Not Collectible (CNC). To qualify, your financial circumstances must be such that making any payment towards your liability would cause you financial hardship. Keep in mind that CNC status is temporary, and the IRS will periodically review your case to re-evaluate your ability to pay. However, in theory, if your situation remains unchanged for an extended period, it is possible to outlast your tax debt without paying a single cent.

Cautious Optimism

Having a tax debt is not the end of the world, as the IRS offers several useful programs that you might be eligible for. However, it’s essential to approach the situation carefully. Initially, it’s advisable to consult with a tax resolution company before taking any action. This consultation usually comes at no cost to you and can provide valuable insights into the most suitable resolution strategy. After all, seeking a legal solution to your tax problem is perfectly acceptable, as long as it’s based on reality.

Garnishment/Levy Release

Many individuals are familiar with the concept of wage garnishment, but the term levy may not be as well-known. Essentially, both result in the government seizing money or assets to repay a debt you owe. This can involve the IRS draining your bank account, withholding future tax refunds, and even confiscating and selling your property, such as vehicles, to settle the outstanding balance. So, what can be done in such situations? If a levy or garnishment significantly reduces your ability to cover basic and reasonable living expenses, you have the option to seek a modification or release due to the financial hardship it creates.

Bankruptcy 

While some may view it as a potential solution, filing Chapter 7 or Chapter 13 bankruptcy and completing the bankruptcy plan may not guarantee a discharge (relief from personal liability) of tax debt. Bankruptcy can negatively impact your credit score, hinder your ability to borrow, and result in serious financial repercussions. If you have already filed for bankruptcy, or are considering doing so, it is crucial to consult your attorney about the tax implications involved.

When to Consider the IRS Debt Forgiveness Program

Consider the debt forgiveness program when you have exhausted all other methods to settle your taxes without success. This program might be a viable option if a taxpayer cannot afford their tax bill. However, it should not be the primary choice. The ideal scenario involves repaying the tax liability in a single lump sum. If that is not possible and all other alternatives have been explored, the IRS debt forgiveness program could be a potential solution.

Failure to pay taxes on time results in a late filing penalty, which amounts to five percent of the tax owed per month of delay, up to a maximum penalty of 25 percent of the total balance. Additionally, underpaying taxes may incur a penalty ranging from 0.5 to one percent per month on the outstanding balance.

Failing to fulfill your tax obligations can lead to a rapidly escalating tax liability. In such cases, the IRS debt forgiveness program might be a suitable financial solution. However, it is essential to understand that not all taxpayers are eligible for this program. The IRS evaluates various factors to determine eligibility, and only those meeting specific criteria will qualify.

The IRS conducts a thorough examination of your financial situation to decide whether they believe you can settle your tax bill. If they determine you cannot, they will offer you tailored relief options. It is rare for the IRS to forgive tax debts completely. Arrangements like Offer in Compromise are only granted to individuals experiencing genuine financial hardship, such as a severe healthcare emergency or job loss combined with limited employment prospects. This option will never be available to those with substantial income or significant assets.

Another aspect to consider is the possibility of managing your tax debt independently through the IRS’s installment agreement using their payment plan option. This alternative is accessible to anyone who applies with Form 9465 and has an outstanding balance of less than $10,000. If your tax debt falls within this range, opt for this solution instead of seeking another debt forgiveness program.

Is it a Good Idea to Utilize the Debt Forgiveness Program?

The IRS debt forgiveness program can be a beneficial option for those unable to pay their taxes in full. However, it comes with certain consequences. Forgiven debt through these programs may be taxable in the future, potentially leading to additional financial obligations down the line. This option might be suitable if you are aware of this possibility and are comfortable with the prospect of paying more later while resolving your current tax issue.

It is important to note that participating in the forgiveness program may impact your credit score, as the IRS might report the forgiven debt as a negative mark. Additionally, delaying tax payments could result in penalties and increased interest rates, making repayment more challenging.

How Does IRS Tax Debt Forgiveness Work?

The IRS debt forgiveness program operates by enabling taxpayers to have a portion or all of their tax debt forgiven. Depending on the amount owed, taxpayers may be eligible for complete or partial forgiveness. If granted full forgiveness, the IRS will eliminate all outstanding tax liabilities and not require further payments.

Taxpayers can also request a settlement offer from the IRS, leading to reduced payments over a specified period. This option is well-suited for those who cannot pay their entire tax liability but can commit to ongoing payments at a lower amount.

To begin exploring IRS tax debt forgiveness, consult with a tax professional or tax attorney who can negotiate with the IRS on your behalf. These experts have more experience in such matters and can help you secure better terms for a payment plan or improve your chances of being granted a debt forgiveness plan.

Am I Eligible for the IRS Tax Debt Forgiveness?

To qualify for the forgiveness program, taxpayers must show that they are unable to fully repay their taxes due to financial hardship. This hardship may result from job loss, illness, or disability. In addition to proving financial hardship, the IRS must also ascertain that there has been no intentional negligence on the part of the taxpayer.

The IRS will carefully examine all requests before deciding whether to grant forgiveness or not. Applicants should be prepared to provide comprehensive documentation and evidence of their financial circumstances.

The IRS typically considers several factors when determining eligibility for debt forgiveness for taxpayers. These include:

• Tax balance below $50,000
• Income below $100,000 for individuals or $200,000 for married couples
• A recent income decrease of over 25% for self-employed individuals

Will You Be Penalized for Using the Debt Forgiveness Program?

In most instances, taxpayers using the IRS debt forgiveness program will not face penalties if they fulfill all necessary criteria. However, there might be some tax implications associated with having your tax debt forgiven.

Potential adverse consequences may include reduced credit scores, which could affect your ability to obtain loans for items like cars or homes in the future. In some cases, the forgiven tax liability amount may be considered taxable income in a subsequent year. This means you could owe taxes on the forgiven amount during the next tax season. It is crucial to consult with your accountant or tax attorney to comprehend how this operates and plan accordingly to prevent unexpected taxes in the future.

How to Apply for Tax Debt Relief or Forgiveness from the IRS

There is good news: tax debt relief is possible. The not-so-good news? Not everyone qualifies for a settlement, but there are several options to explore and consider. The IRS offers a variety of tax debt relief programs and many online tools and forms to make it easier to apply for them. If you are overwhelmed by the complexity of your situation, consult a professional — we are just a phone call away. Either way, it’s best to deal with tax debt as soon as possible.

What to Know Before You Ask for IRS Tax Debt Forgiveness

First, comprehend the reason the IRS claims you owe taxes and determine if you agree with their assessment. If you believe the IRS has made an error or miscalculated something, consider enlisting the help of a JJ Tax Group Tax Resolution Specialist to clarify the issue prior to taking action to resolve it.

Requirements for Tax Debt Forgiveness or Settlement

• You must ensure that all tax returns are filed.
• Your state income taxes should be paid.
• You cannot be involved in an ongoing bankruptcy proceeding.

For installment payment agreements, there are some other requirements:

• Your tax debt cannot exceed $100,000 (further details below).
• You must be able to make monthly payments to the IRS.
• It is expected that you will make timely payments for the agreed-upon term.

The amount of your debt can also affect your available options:

• If you owe $50,000 or less in combined tax, penalties, and interest, you might be eligible to apply for a long-term payment plan (more than 120 days, up to 72 months).
• If you owe less than $100,000 in combined tax, penalties, and interest, you might be able to apply for a short-term payment plan (up to 120 days).

Is a Tax Debt Relief Program Right For You?

It is highly likely that one of the aforementioned options can assist you in resolving your IRS tax debt. To determine the most suitable solution for your specific situation, seeking advice from a tax professional is recommended. Feel free to reach out to us for a complimentary consultation. 

What About Taxes During Debt Forgiveness?

Debt forgiveness generally results in a revenue loss for the creditor, or in some instances, a capital loss. In the absence of specific debt forgiveness regulations, the debtor might not be taxed on any gains and could continue to claim deductions for both revenue and capital losses, as well as other eligible expenses.

Can Tax Be a Debt?

Tax liability refers to the total amount of tax debt an individual, corporation, or other entity owes to a government. Various types of taxes, such as income taxes, sales tax, and capital gains tax, contribute to this tax liability.

What Is Form 982 for Cancellation of Debt?

Form 982 is utilized to ascertain, in specific situations outlined in Section 108, the amount of forgiven debt that can be excluded from an individual’s gross income.

Can Debt Be Cancelled?

Debt cancellation may transpire when the creditor is unable to collect or decides to abandon the pursuit of the amount you are required to pay.

Obtaining tax debt forgiveness is a viable option for those struggling to repay their outstanding tax liabilities. By exploring various avenues such as offers in compromise, installment agreements, innocent spouse relief, or seeking professional advice, individuals can find suitable solutions to alleviate their tax burdens. It is essential to understand the eligibility criteria and requirements for each option and consult with one of our tax professionals if needed. 

Now that you know how to get tax debt relief, you can start taking proactive steps toward resolving tax debt, which will lead to financial stability and peace of mind, ultimately benefiting both the taxpayer and the government.