Transform Your Finances: Tackle Tax Problems and Slash Debt Today!
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- Tax relief services often assist with applying for IRS payment plans for tax debt.
- However, they frequently charge exorbitant fees for tasks you can handle yourself.
- If you’re finding it challenging to manage your tax bill, reach out to the IRS for a discussion about your options first.
Are you one of the countless Americans grappling with federal tax debt? If so, you might be contemplating the merits of tax relief services. While tax debt is no small matter, the good news is that hiring a costly professional isn’t always necessary. In fact, doing so can inflate your expenses by hundreds or even thousands of dollars.
If life has thrown you a curveball, working directly with the IRS or your state tax agency for a payment plan is often the most economical route.
What Are Tax Relief Services?
Definition and Overview
Tax relief services are entities that can assist you in organizing a plan to settle your outstanding taxes by liaising with the IRS on your behalf. If you owe the IRS, it may seem logical to hire a professional for aid—but beware: it can be expensive and often unnecessary.
“Many of these companies capitalize on people’s fears of the IRS,” explains Greg Hudgins, a CPA operating in Florida and New York. “They exploit the anxiety of potential jail time, which is generally unfounded.”
The Federal Trade Commission advises caution against tax relief firms that demand hefty upfront fees and make empty promises to “eliminate” or significantly reduce your tax liabilities.
While a select few tax relief services are legitimate, the average taxpayer is often capable of negotiating their own tax obligations, commonly through online applications for payment plans or offers in compromise.
“It’s a straightforward process—just fill out a form and submit it,” Hudgins assures.
Types of Tax Relief Services Available
As of the end of 2023, over 11.3 million Americans were behind on federal taxes. It’s no wonder tax relief services are so heavily marketed. However, many don’t live up to the hype.
“Be wary; exorbitant fees are common and success is not guaranteed,” warns Paul Miller, managing partner and CPA at a prominent accounting firm with locations in Florida, New York, and Washington, DC.
“Instead, consider reaching out to non-profit debt counselors. They can aid in budget creation and payment strategies, although some may still require fees,” Miller recommends.
The IRS offers three primary types of tax relief for those needing more time to settle their federal tax obligations:
All of these can be negotiated directly between you and the IRS. A tax relief service or debt counselor merely assists with paperwork and organization.
Note: Low-income individuals who speak English as a second language should seek assistance from an approved local clinic. Help is often provided at little to no cost.
How Tax Relief Services Work
Initial Consultation and Assessment
If you opt to utilize a tax relief service, make sure not to pay any upfront fees.
The best services provide free consultations to assess your tax debt situation and propose an actionable plan. Be prepared to present any correspondence from the IRS or your state tax agency, along with your latest tax returns and any proof of tax payments made.
Many companies specify a minimum tax debt threshold of $5,000 to $10,000.
Developing a Personalized Plan
Most tax relief services charge either a flat rate or a fee based on the percentage of your debt. You’ll likely need to pay part of the fee upfront to receive your tailored plan.
The plan should clearly outline the steps the company will take to assist you in managing your tax debt, including deliverables like IRS payment plan approvals or offers in compromise, along with a final payment date and total amount.
Implementation and Resolution Process
The service should guide you through the form-filling process and help you gather the necessary documents to negotiate your tax debt through an offer in compromise or set up a payment plan.
Common Tax Problems Addressed by Tax Relief Services
IRS Back Taxes
In the U.S., we follow a pay-as-you-go tax system. If you fail to pay your full tax obligation for the year via withholdings or estimated payments, you’ll owe additional taxes when April 15 rolls around. And skipping your tax return doesn’t exempt you; it only leads to more penalties and interest on your outstanding balance.
Tax Liens and Levies
If you can’t pay your tax bill in full, it’s your responsibility to contact the IRS, explain your circumstances, and apply for a payment plan. Ignoring IRS communications can result in the IRS placing a claim (levy) on your assets, which may include garnishing wages or seizing property.
Be on the lookout for a bill labeled Final Notice, Notice of Intent to Levy, and Your Right to a Hearing. The best move you can make is to call the IRS right away and work out a payment plan.
“Ignoring tax problems is the worst thing someone can do,” Hudgins cautions. “Usually, a simple phone call to the number on the notice can clear things up with some light effort.”
Utilizing a tax relief service may prolong the process, offering no better solutions than what the IRS itself can provide.
Wage Garnishments
Wage garnishment is a severe form of tax levy. It’s a last-resort action that the IRS may take if you have failed to pay your federal tax bill after several collection attempts.
The IRS will remove a levy under several conditions, such as if it causes financial hardship or if you establish a payment plan. The best approach? Call the IRS directly to explain your situation.
Penalties and Interest
You’ll incur a failure-to-file penalty amounting to 5% of your unpaid tax for each month your return is late, capped at 25% of your total unpaid taxes after five months.
After 60 days, expect a minimum penalty of $435, or 100% of the tax due, whichever is lesser, according to the IRS.
A failure-to-pay penalty may also be applied, which could lessen the failure-to-file penalty if they overlap.
Interest on unpaid taxes is calculated using the federal short-term rate (which varies) plus 3%.
Audits and Appeals
The IRS generally has three years to audit a return, but this can extend to six years for major errors. As a taxpayer, you hold the right to hire an enrolled agent, CPA, or tax attorney to represent you. Expect the IRS to request various records and receipts that supported your tax return. If you disagree with the IRS’ findings, you can appeal their decision.
Note: The Taxpayer Advocate Service, an independent wing of the IRS, can assist you with tax debt if you’re experiencing financial hardship. Requesting assistance is quick when you fill out Form 911 and fax it to your local TAS office.
Choosing the Right Tax Relief Service
Key Factors to Consider
A trustworthy tax relief service will be transparent about pricing, offer a money-back guarantee, and have solid customer service ratings. Don’t just take their word for it—check out online reviews on platforms like the Better Business Bureau, Consumer Affairs, Trustpilot, and Google Reviews.
It’s wise to call and ask about fees, staff qualifications, and what you can expect from the process, especially regarding timeframes. Time is critical when dealing with debt, as interest will keep accruing on your balance.
Lastly, steer clear of companies promising “guarantees” or claiming they can drastically reduce your debt. Only the IRS can determine your eligibility for tax relief based on your financial circumstances. The relief company is merely a facilitator.
Top-Rated Tax Relief Companies
Precision Tax, Anthem Tax Services, Fortress Tax Relief, and Community Tax often make the cut as top tax relief companies. However, it’s essential to do your own homework.
Cost of Tax Relief Services
Fee Structures and Payment Options
Many tax relief firms employ percentage-based fee structures, which can escalate quickly and are often not the most economical way to tackle your tax debt. Hourly fees can add up just as fast.
Seek out companies that offer a flat fee covering all-inclusive services. After your initial consultation, the company will provide you with a single price—typically paid in installments—that encompasses everything needed to resolve your IRS debt.
Understanding the Value of Professional Help
If the thought of speaking with an IRS agent about your debt makes your stomach turn, hiring a professional might be the right call. Or, if you’re contesting the IRS’ assessment of your tax situation, a pro can help you build that case.
However, your ultimate goal should be to clear your debt swiftly and at the lowest cost. If a tax relief company’s fees exceed what you can comfortably afford upfront, it’s not worth incurring more debt.
“Many of these companies entice clients with promises to settle debts for mere pennies on the dollar, but they often charge upfront fees, ultimately just guiding clients through the offer in compromise process,” Hudgins explains.
Remember, contacting the IRS to discuss your situation and options is free and typically the best way to resolve your debt.
Tax Relief Programs and Options
Offer in Compromise (OIC)
“In my experience, tax relief services usually engage with the IRS for something known as an offer in compromise,” Hudgins notes. While the forms are lengthy and require careful attention, the IRS offers clear application instructions for individuals.
“You’ll need to provide a wealth of information about your financial situation, including all assets and liabilities, demonstrating that you currently lack the means to pay off your tax debt,” Hudgins elaborates.
Expect to include pay stubs, bank statements, loan documentation, and other vital financial records. While this sounds daunting, a tax relief service can help keep you organized, ensuring you include the right documents and avoid mistakes on your forms. However, their assistance is not mandatory. Your submitted “offer” to the IRS is based on a formula that factors in your net monthly income.
There is a $205 application fee for an offer in compromise unless you qualify as low-income. Those in bankruptcy cannot apply.
Installment Agreements
An installment plan can provide relief for those needing time to pay off their balance. If your total tax debt, including penalties and interest, is $50,000 or less, you can apply online for a long-term payment plan.
Setting up automated withdrawals incurs a $22 fee (unless you qualify for a low-income waiver), while non-direct debit payments carry a $69 fee. Some penalties and interest will continue to accrue during this period.
If you can pay off your balance, penalties, and interest within six months and owe less than $100,000, you may apply for a short-term payment plan, which has no setup fee.
The primary advantage of an installment agreement is that you can avoid severe consequences—like wage garnishment—by committing to regular payments to the IRS.
Currently Not Collectible (CNC) Status
If the IRS determines you cannot meet your basic living expenses while also addressing your tax debt, they may temporarily halt collections. While penalties and interest will still accrue, your account can be placed in “currently not collectible” status until your financial situation improves, evaluated annually.
To apply, contact the IRS at the number on your notice, and be ready to complete additional forms and provide documentation supporting your claims of financial hardship.
Innocent Spouse Relief
If you filed a joint tax return with your spouse and they made an error that led to understated taxes related to their income, you might qualify for payment relief.
Penalty Abatement
If you fail to file or pay taxes, the IRS will impose penalties on your unpaid tax. However, if this is your first time owing taxes and you’ve consistently filed your returns on time, you could qualify to have your penalty charges waived.
DIY Tax Relief vs. Professional Services
Pros and Cons of DIY Tax Relief
Most tax debts can be negotiated directly with the IRS or your state agency. Here are some pros and cons to weigh when considering a DIY approach.
Benefits of Hiring a Professional
If your budget allows, a tax attorney or CPA may be a better resource than a tax relief company when tackling debt. They possess the expertise needed to help organize your debt and select the best payment plan for your circumstances. They can also continue advising you on ongoing tax matters, such as planning, filing returns, and ensuring timely payments.
FAQs About Tax Relief Services
Tax relief services assist individuals and businesses in becoming current on their tax debts by guiding them through applications for IRS payment plans or offers in compromise. These services usually charge a flat fee or a percentage of the debt, with minimum tax debt requirements ranging from $5,000 to $10,000.
To select the right tax relief service, ensure transparent fees, look for a money-back guarantee, and check that online customer reviews are predominantly positive.
An offer in compromise allows you to negotiate your tax debt with the IRS. If you can demonstrate financial hardship, you may be able to reduce your tax liability and arrange for payment over time. Individuals and businesses can apply by following the IRS instruction manual.
No, tax relief services cannot halt a wage garnishment (or levy). Taxpayers experiencing financial hardship should contact the IRS directly using the number on their notice to discuss setting up a payment plan, applying for an offer in compromise, or releasing the levy.
Tax relief services can be pricey, often costing hundreds to thousands of dollars for assistance that taxpayers can manage on their own. They are typically not cost-effective for individuals already burdened by tax debt, and in some cases, they may lead to further financial strain.
