Many new and old Internal Revenue Service (IRS) initiatives exist to offer help to taxpayers struggling with tax debt in a variety of ways. Many of these offer tax forgiveness to individuals without the income or ability to pay back taxes. If you are dealing with mounting tax bills and feel overwhelmed, know that there are options for relief, including forgiveness programs, and that qualified professionals can help you make sense of your situation.
Depending on your needs, you may be able to suspend the collection of your bills through the various relief programs, or qualify for installment agreement options, as well as request lower monthly payment amounts and more time to pay amounts due. More and more leniency has been given by the IRS in the past few years because of financial hardships endured by so many people due to the COVID-19 pandemic.
What this means is that debt forgiveness is possible thanks to changing tax policy, but it’s best to enlist the help of a professional to maximize the amount of time, money, and effort you save in the process. Here is more information that’s necessary to understand the impact of tax debt and the potential for forgiveness and tax relief.
Impact of Tax Debt on Credit History
Failure to accurately report or pay your taxes can result in a number of penalties and fines. These can be small at first but accumulate over time if no action is taken. If you fail to fully pay your federal income taxes or make errors on your tax return, these issues will not simply go away. In fact, they can cause severe problems and impact your credit, as well as your ability to earn income in the future.
Your credit scores are based on information put together into credit reports. These reflect your history of borrowing and repaying loans, as well as other financial matters like filing for bankruptcy. Because your credit reports don’t track tax bills or payments, not paying your taxes on time does not directly factor into your credit score. However, a failure to pay your income tax or errors on your W-2 can lead to a tax lien or tax levy against your property. A lien is a legal claim against the property in order to get payment of the tax debt, which allows the IRS to take whatever unpaid taxes you owe out of proceeds made from selling your property, such as your house or your car. A tax levy actually takes the property instead of the money for the debt. Either is a serious punishment that can be avoided by more manageable payments thanks to tax forgiveness.
As we mentioned, even though tax liens and levies don’t appear on credit reports, they can still damage your credit. This is because If you apply for a mortgage or a loan, lenders can see these liens and levies through public records, and may even consider them grounds for denying an application.
Paying Your Taxes With a Credit Card
When you don’t have enough in your checking account, it can seem very convenient to pay your taxes with a credit card. It’s important to note though that unless you’re able to pay off the balance quickly, you’ll be paying interest at your credit card’s standard rate on the payment. Charges can add up quickly if you’re not able to pay down the balance right away. In addition, when the IRS processes a credit card payment there is an additional fee of nearly 2%. All of these additional fees can add up and lead to excess credit card debt that could eventually hurt your credit score.
How Do I Get My IRS Debt Forgiven?
A tax settlement, also known as an “Offer in Compromise” (OIC), is an agreement between an individual and the IRS or state tax agency that allows that person to pay off their debt for less than the original amount owed. This depends on which type of tax is owed and how much. In order for these agencies to agree to a tax settlement, there must be certain reasons to do so, including anything that makes it very difficult for a person to pay the full amount of debt owed within a reasonable amount of time. The best course of action is to get professional expertise and possibly representation in order to prove and argue your case for a delayed or reduced payment. A tax attorney can assist you with ensuring you have all of the complete documentation and necessary forms to best fill out the offer in the compromise application.
Earned Income Tax Credit
Sometimes people reporting very high or very low earned income on their tax returns will also trigger a closer look by the IRS. A lower income may qualify a taxpayer for an earned income tax credit, and the government wants to ensure these credits are going to the people who need them. An earned income tax credit can make a big difference for lower-income families when doing their taxes.
Avoid Tax Liability and Get Help Today
Doing your taxes isn’t always an easy process, especially for individuals who own or manage their own businesses with the added hassle of payroll taxes. Even with programs like TurboTax, knowing the different primary and secondary tax forms or standardized and itemized deductions can be confusing and lead to errors that may cost you. Know that you aren’t alone in facing debt and that reaching out is a good thing. IRS Tax Relief Network has tax attorneys with years of experience to provide you with efficient and cost-effective back tax assistance. Whether it’s giving you helpful information on additional forms to increase your tax refund or helping you to secure a loan, IRS Tax Relief Network is just a phone call away for a free consultation.
