Are you overwhelmed by tax debt? There might be ways to ease the burden. Here’s what you need to know about tax relief. In the United States, over $450 billion in tax debt goes unpaid annually, with more than $380 billion of this gap due to underreporting. However, the IRS maintains records of W-2s, 1099s, and other income documentation for every taxpayer. So, if you’re underreporting income or failing to file, it will eventually be discovered.

Did you know that the tax code contains over 10 million words? With such an extensive set of IRS regulations and revenue codes, staying on top of your taxes is essential. However, life can be unpredictable, and many Americans find themselves owing taxes and seeking relief. The good thing is that several alternatives are available for tax debt relief. If you’re feeling overwhelmed by your tax obligations, this guide will help you navigate the process and lighten your tax burden.

Understanding Tax Relief

Tax relief doesn’t always mean eliminating your entire tax debt. Instead, it involves finding a manageable payment plan or reducing some of your debt. Additionally, special tax relief may be available in specific circumstances, such as natural disasters, where victims might receive deadline extensions or reductions in the amount owed.

Ways to Obtain Tax Relief

If you can’t afford to pay your tax bill in full, there are options available to help provide relief.

IRS Repayment Plan

The IRS often allows taxpayers to break their total balance into smaller payments. A long-term payment plan lets you spread payments over 120 days or more, and you must owe $50,000 or less in total (including taxes, penalties, and interest). A short-term payment plan allows you to set up payments over 120 days or less, with a maximum total owed of $100,000.

Offer in Compromise

If you’re experiencing financial difficulties and can’t foresee paying your tax bill in full, the IRS might allow you to settle your debt for less through an option known as an offer in compromise. This option is available if paying your full tax liability would cause financial hardship or if you’re unable to pay it at all.

When the IRS reviews your offer in compromise application, they will consider several factors, including your income, expenses, assets, and ability to pay. They will request financial documents and other paperwork detailing your finances to assess whether you qualify for this relief.

Exploring Penalty Relief Options

If you meet certain criteria, you might be eligible for penalty relief. If granted, the IRS will forgive the penalties associated with your tax bill. While you will still owe the original taxes, removing the penalties will reduce your overall debt.

To qualify for penalty relief, a taxpayer must demonstrate that they made their best efforts to comply with their payment plan. For instance, if a taxpayer faces a natural disaster or a significant home issue that impedes their ability to pay, they might be eligible for penalty relief.

To qualify for penalty relief, a taxpayer must:

• Have filed all required returns for the current year.
• Have arranged to pay or paid any taxes due.
• Not have had to file a return or incurred any penalties in the three tax years prior to the year in which the penalty was assessed.

If it’s your first time filing late, forgetting to file, or missing a payment, you may qualify for first-time penalty abatement by meeting the following criteria:

• You must have no penalties for the three tax years preceding the year in which you were given the penalty.
• You were not required to file a tax return for the three years preceding the year in which you received the penalty.
• You have submitted all required forms or requested an extension for late filing.
• You have either arranged to pay or have already paid any taxes owed.

Understanding Statutory Exceptions

If a taxpayer receives incorrect advice in writing from the IRS, they may be eligible for a statutory exception. To request penalty relief under these circumstances, include the following items:

• A written request to the IRS for penalty relief.
• A copy of the erroneous advice received from the IRS.
• Documentation of any tax adjustments, including reports identifying the penalty or additional tax, and any other items related to the incorrect advice.

Is Tax Relief a Good Choice for You?

Although owing money to the IRS can feel overwhelming, avoiding the issue will only make it worse. It’s important to address what you owe and create a plan for moving forward. By staying compliant and paying attention to any correspondence, you increase your chances of receiving relief. If you can’t pay your tax debt in full, don’t panic—there are various payment plan options available. While the cost of hiring a tax professional might seem high, it can save you money in the long run by helping you navigate your tax relief options effectively.