Owing money to the Internal Revenue Service (IRS) can be scary. This agency has a lot of power, and depending on how much you owe, the IRS may garnish your wages, seize your assets, or take your passport. Luckily, in some situations, you may be able to reduce your debt and pay less than you owe.
Owe the IRS more than you can afford to repay? Then, check out these tips for reducing your debt.
1. Request Penalty Abatement
When you owe money to the IRS, the agency adds fees and interest to the amount you owe. As a result, your bill is likely to be a lot more than your original tax liability. Luckily, the IRS has several penalty abatement programs. In particular, if you have never had IRS debt before, you may be able to get your interest and penalties erased. The agency will never take this step automatically. You need to reach out and request penalty abatement.
2. If Relevant, Ask for Spousal Relief
Generally, when a couple files their tax return as married filing jointly, they are jointly responsible for the debt. However, if you did not know what your spouse was doing with the return, you may be able to get some of your debt forgiven. This is referred to as innocent spouse relief, and it can be hard to obtain. But if you are in this type of situation, you should contact the agency and explain what happened.
3. Look Into an Offer in Compromise
An offer in compromise is when the IRS agrees to settle your debt for less than you owe. This can be the most effective way to reduce your tax debt, but to qualify, you must meet strict criteria. Namely, you need to prove to the IRS that you cannot afford to pay your debt and to do so, you need to provide very detailed financial statements.
4. Amend Old Tax Returns
If your tax debt is due to an incorrect tax liability, you may want to look into amending old tax returns. Amending simply means making changes to a return that has already been filed. For instance, if you forgot to claim deductions for your business or if you didn't request a credit for child care expenses, you can amend your return to reflect these issues. You have three years from the due date to amend your returns or two years from the date you paid your taxes. For instance, if your 2016 return was due on April 15, 2017, you have until April 15, 2020, to amend this return.
5. Contact a Tax Debt Resolution Company
Dealing with tax debt can be tricky. Consider getting help from a tax resolution company. They can help you find the best options for your situation.