Tax Planning

Everything You Need to Know About Tax Resolution

by
Joe Aguilar
on
5/12/2023
Everything You Need to Know About Tax Resolution

Sometimes, circumstances beyond your control may have led to you owing more money in taxes than you expected at the end of the year - money you couldn't necessarily pay at the time. Just because you get on a payment plan and keep your account current doesn't mean you won't owe taxes again the next year, mind you.

If not taken care of quickly, this is an issue that can only get worse over time. It happens to countless people, and it can feel equal parts stressful and overwhelming.

Thankfully, all hope is not lost. There are a number of tax resolution options available to you that you should absolutely be aware of (preferably before you need to take advantage of them).

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Credit: Getty Images

What to Know About Tax Resolution: An Overview

One of the most important concepts to be aware of in this process is called the IRS Offer in Compromise. As the name implies, this is a method that allows you to settle the amount of tax debt you owe for less than the full amount associated with your account. If you simply can't pay the full amount, or if doing so would cause some other type of financial issue in your life, it may be something worth exploring.

When you submit Form 656 the IRS will consider a few distinct things about your situation. This includes not only your ability to pay, but also your annual income as well. This, coupled with other elements like your expenses and the amount of asset equity you have, will all help them determine whether they should accept or reject your Offer in Compromise.

Note that the only people who are eligible to apply for an Offer in Compromise are those who A) filed all required tax returns for the year(s) in which the debt was accrued, and B) who made all required estimated payments during the same period. You also can't be actively filing for bankruptcy, and you must have a valid extension if you're filing for the current tax year.

This will settle your debt outright - meaning you don't owe any back taxes, but you will again need to file for (and pay) your taxes in the future.

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Credit: Getty Images

Enter: IRS Innocent Spouse

Another option that the IRS uses to help people solve tax problems is called Innocent Spouse Relief. This helps prevent someone from paying more taxes than they should if their spouse understated the amount that was due on a joint return. Provided that the innocent spouse in question did not know about the errors (meaning they didn't participate if they were intentional), they may be eligible for this type of relief.

Keep in mind that this method is only available to get relief from a spouse's taxes pertaining to their employment or self-employment. You can't actually claim it on your own income, any household employment taxes that may be necessary, and things like business taxes.

In the end, just because you suddenly find yourself left with a significant tax bill does not mean that relief isn't a possibility. There are a myriad of different understandable reasons why you may have fallen behind on your payments. Sometimes it's not even a fast process - it can happen slowly over time and payment plans can only offer so much assistance.

Nevertheless, it's key to recognize that the help you need is always available - you just need to know where to look.

If you're interested in finding out more information about IRS tax resolution principles and best practices, or if you'd like to solve tax problems in your own life but aren't sure where to begin, please don't delay - contact us today.

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Joe Aguilar

Joe Aguilar

Experienced Tax Professional with a specialization in small businesses. We provide tax preparation for individuals and small businesses (LLC's, Partnerships, and S-Corps). We also provide tax planning, bookkeeping, and payroll services. We know how to help your business grow! We will take care of your tax, accounting, and bookkeeping needs so you can focus on what you do best which is making money. https://www.yelp.com/biz/j-aguilar-tustin

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