Individuals and businesses that have outstanding tax balances can be subject to severe penalties by the Internal Revenue Services. In some cases, this could lead to the seizure or destruction of personal or company assets. This dilemma can lead to a financial crisis and a new type of business was created to assist tax-delinquent taxpayers.
These entities are known as tax settlement companies. They claim that they can reduce or eliminate any owed taxes to the IRS. These firms claim they can reduce or eliminate the clients owes to the IRS. But is this true?
KEY TAKEAWAYS
- Firms that specialize in tax settlement claim to have access to a wide range of experts, including former IRS employees, who are available to help their clients.
- Tax settlement agencies make promises that are almost impossible to keep, as the IRS is not likely to accept any offer to lower the tax owed.
- It is often difficult to qualify for offers-in-compromise and can take several months.
- High fees are common for tax settlement firms.
What are Tax Settlement Firms?
You have probably seen these ads on TV. People in desperate need who owe the IRS tens to thousands of dollars and have no one to help. The tax settlement company steps in, leaving the client with amazing messages saying that their tax liability has been miraculously reduced to hundreds or even thousands of dollars. Clients feel elated and more than satisfied. However, this is television or radio, or social media. Reality doesn't always work like that.
The debt settlement industry is a good place to start if you are unsure about the tax settlement industry. Both work in a similar way to varying degrees. Many firms that specialize in tax settlements claim they have access to a wide range of tax experts who were former IRS employees. In reality, this may be a substantial misrepresentation--at least in some cases.
While there might be a few employees who worked for the IRS, such as lawyers or a few people within the company, most likely the majority of employees have not. Many employees are minimum-wage customer support representatives.
How Does Tax Relief Work?
Many tax settlement companies promise to send experts to the IRS to negotiate for their clients. They can then persuade them to accept a smaller amount, often pennies on each dollar. This is almost impossible and the IRS rarely accepts a reduction in tax due. Uncle Sam may accept a repayment agreement for back taxes if there are:
- The taxpayer has to be in an extreme situation where the amount due would create an economic hardship or be unfair (this would need to be an exceptional situation).
- If the debtor cannot find any kind of work that will provide enough income to repay the amount, like if they are disabled or have long-term illnesses.
- To cover tax obligation 1, the person who owes taxes must have no assets that could be used to pay the required tax 1.
Everyone else's best hope is to get an extension of time for their tax debts to be paid. This usually includes additional interest and penalties.
Compromise or Offer
To reduce clients' tax bills, tax settlement firms use an IRS-accepted procedure called an offer to compromise. This agreement allows some taxpayers to settle tax debts with the IRS for a lower amount than they owe. To settle tax debts, the taxpayer must provide substantial information to IRS regarding their assets and future income.
Also, offers in compromise can take up to several months to complete. Qualifying for one of these offers might be more difficult than for Medicaid. This avenue does not offer a spend-down strategy.
The approval rate of offer-in-compromise applications is usually very low. Taxpayers must show that they can prove the amount owed to be reduced.
Auditor's reviews are not always final. Taxpayers who have been audited may be able to appeal and save thousands of dollars.
IRS Form 656 states that an exceptional circumstance could lead to financial hardship. It would be something like "unplanned events" or special circumstances (e.g. serious illness) where paying more than the minimum amount may impair your ability provide for your family. "2
Price Tag for Tax Settlement Firm
Tax settlement companies often charge an initial fee of between $3,000 to $6,000 depending on the amount of the tax bill and the proposed settlement. The fee is non-refundable in most cases and often mirrors the amount the client has of cash available. This is usually the amount the company claims it will save clients on tax payments.
The IRS Office of Professional Responsibility is concerned about questionable practices in tax debt resolution. You can submit problems to the IRS using Form 14157 Complaint: Tax Resolver. 3
Clients complained to the Better Business Bureau and the Federal Trade Commission about the fact that not all of these firms produced the promised results or were a fraud. Many firms materially misrepresent the fees they charge clients. They may initially charge a lower fee but then come back for more after being involved in the process.
Rates of success for tax settlement firms
The IRS rejects all offers of compromises it receives every year, as we have stated. There are very few clients who receive satisfaction from tax settlement companies, and many of them are financially poor. Most potential settlement clients must work out payment plans with IRS to pay off their tax balances in a time frame that allows them to keep their assets and dignity.
More information on payment plans can be found on the IRS Website.
Locating a legitimate tax relief firm
Potential customers should be aware of these warning signs if they are thinking about hiring a tax settlement company. A firm promising a dramatic reduction in taxes for a customer without first obtaining a thorough financial background is likely to be a fraud. A tax agent that doesn't ask a client why they owe the IRS money isn't doing the proper investigation.
Reputable tax relief firms will ask for financial information from their customers before they give them a realistic estimate of what they can do at a fair fixed price. Prospective clients should look for a local firm that is well-established and has a strong presence in the area.
IRS Tax Settlement Warnings
Many taxpayers deal with the IRS because it is one of the most complex creditors. The IRS has the legal right to seize assets and take extreme collection measures. Many taxpayers who are in default find the agency more frightening than private creditors and credit card agencies.
This fear is what tax preparation companies play on, promising professional assistance that will solve their problems. These companies may make misleading claims and require large upfront payments. Don't fall for them. The IRS has previously warned the public about fraud firms, citing many problems here. The IRS offers many ways for you to collect what you owe.
Publication 554, The IRS Collection Process provides a detailed description and description of both the Offer in Compromise and the collection process. This information can be compared to what a tax settlement company tells you to make sure you are given the correct information before making a decision about whether to retain them.
The bottom line
There are many risks involved in the tax settlement industry. It is better to have your tax or financial advisor refer you to a qualified and experienced tax attorney who can help with unpaid taxes. You should be ready to go through extensive financial analysis as well as a lengthy bureaucratic process. They should also be ready to hear the IRS say "no" at the end.
Do Tax Relief Companies Work?
It depends. The industry is full of scams and poor business practices. False promises and high fees are used to lure customers by disreputable businesses. Still, legitimate tax settlement firms do exist. These firms are upfront about whether or not you will benefit and they charge reasonable fees.
Are Tax Settlement Companies Worth It?
It all depends. While disreputable companies might charge hundreds to thousands of dollars, they may not provide the results you are looking for. Good companies, on the other hand, charge transparent, reasonable fees and have proven track records. A flat percentage of the amount owed by the IRS is charged by some companies, such as 10%. Some companies charge an hourly fee that can range from $275 to $1,000. Companies won't accept clients with less than $10,000 tax debt.
What do Tax Settlement and Tax Relief include?
A consultation is usually the first step in the tax settlement process. A case manager will examine your tax debt and other financial details and then provide an estimate. If you decide to continue, the case manager will conduct an in-depth review of your taxes, create a plan of attack, and negotiate with IRS.
SPONSORED
Get a professional to help you develop your financial strategy
It can be difficult to find a financial advisor. However, the right professional will help you develop a strategy that meets your retirement goals. SmartAsset's tool is free and will match you with fiduciary advisors within 5 minutes. Get started today if you are ready to match with financial advisors that can help you reach your financial goals.
What are the various types of tax relief available?
There are many ways to get tax relief. There are many options for tax relief.
To see the tax relief options available to you, click on the appropriate option for your situation.
- If you are up-to-date on your tax payments, you can get tax relief
- Get tax relief if your taxes are not up to date
If you are current on your tax payments, you can get tax relief
You may be eligible for tax deductions, tax credits, and tax exclusions if you have already paid your taxes. Depending on the eligibility of each one, these can reduce your taxable income and/or your actual tax bill.
Deductions in taxes
Tax deductions allow you to lower your total taxable income, and thus reduce the tax you owe.
Tax deductions are available for various items.
- The interest you pay on your student loan or mortgage
- Property taxes are paid on your house or other properties
- Sales taxes
- Charitable donations
- Health insurance premiums
- For business or work-related expenses
All taxpayers are eligible for a standard tax deduction. This is a $12,400 deduction for a single filer and $24,800 for married couples filing jointly. These deductions cannot be claimed if you don't have the itemized deductions.
Here's an example showing how the standard deduction works. Let's suppose you earned $60,000 in the past year. You are eligible for the $12,400 deduction if you are a single individual. This reduces your taxable income by $60,000 to $48,000 ($60,000 to $12,000). You'd be in the 22% bracket so your income tax would be almost $2,500 ($13,000 vs. $10,000,560).
Tax credits
Tax credits work in a different way than tax deductions. These credits do not reduce your taxable income. Instead, they lower your actual tax bill -- that is, the total amount you owe to the government for the current year.
You can apply for the dependent credit of $2,000 per person if you have children. The $2,000 would be deducted from your final tax bill. The credit could reduce your annual tax bill by $2,000 if you owe $10,000. This is a significant amount of savings.
Tax credits are available for:
- Being a parent to a child or another dependent
- Adopting a child during that tax year
- Being old or disabled
- School-related expenses
- Childcare costs
- Contributing to a retirement fund
- Solar energy systems: Installing
>> Continue reading: The difference between a tax credit or tax deduction
Tax exclusions
In that they can reduce your taxable income, tax exclusions work in the same way as deductions. Exclusions allow you to exclude a portion of your income from your taxable earnings.
One example of this is company-sponsored health plans. These are often considered a "benefit" and a part of your salary as an employee. However, your employer's costs do not count towards your taxable income. This is one of the most common tax exclusions.
Some other tax exclusions are:
- Certain types of income earned abroad
- Disability payments
- Payments for relief from natural disasters
- Housing subsidies or rent
If you are behind in your tax payments, you can get tax relief
There are options for tax relief if you have not yet paid your taxes, owe back taxes from previous years, or have not yet paid them. You have two options: you can either repay your debts in full over time or settle your debts to pay less. Below are the current options.
Fresh Start Program
A fresh start is an IRS program for taxpayers who are behind on their taxes. You can make an Offer in Compromise to settle your debts for less than what you actually owe. These offers will be accepted by the IRS based on your income, assets, and household expenses.
You have two choices for how you make your payments if you are approved. Either you can pay a lump sum upfront (at least 20%) and then make the balance payment within five months. Or, you can pay one payment along with your offer and make the remainder monthly for the next six to two years.
Acceptance of offers in compromise is generally difficult. The IRS has a pre-qualifier tool that can help you determine if this option may be available in your particular case. Form 656B is required to apply.
Related articles:
Individuals and businesses that have outstanding tax balances can be subject to severe penalties by the Internal Revenue Services. In some cases, this could lead to the seizure or destruction of personal or company assets. This dilemma can lead to a financial crisis and a new type of business was created to assist tax-delinquent taxpayers.
These entities are known as tax settlement companies. They claim that they can reduce or eliminate any owed taxes to the IRS. These firms claim they can reduce or eliminate the clients owes to the IRS. But is this true?
KEY TAKEAWAYS
- Firms that specialize in tax settlement claim to have access to a wide range of experts, including former IRS employees, who are available to help their clients.
- Tax settlement agencies make promises that are almost impossible to keep, as the IRS is not likely to accept any offer to lower the tax owed.
- It is often difficult to qualify for offers-in-compromise and can take several months.
- High fees are common for tax settlement firms.
What are Tax Settlement Firms?
You have probably seen these ads on TV. People in desperate need who owe the IRS tens to thousands of dollars and have no one to help. The tax settlement company steps in, leaving the client with amazing messages saying that their tax liability has been miraculously reduced to hundreds or even thousands of dollars. Clients feel elated and more than satisfied. However, this is television or radio, or social media. Reality doesn't always work like that.
The debt settlement industry is a good place to start if you are unsure about the tax settlement industry. Both work in a similar way to varying degrees. Many firms that specialize in tax settlements claim they have access to a wide range of tax experts who were former IRS employees. In reality, this may be a substantial misrepresentation--at least in some cases.
While there might be a few employees who worked for the IRS, such as lawyers or a few people within the company, most likely the majority of employees have not. Many employees are minimum-wage customer support representatives.
How Does Tax Relief Work?
Many tax settlement companies promise to send experts to the IRS to negotiate for their clients. They can then persuade them to accept a smaller amount, often pennies on each dollar. This is almost impossible and the IRS rarely accepts a reduction in tax due. Uncle Sam may accept a repayment agreement for back taxes if there are:
- The taxpayer has to be in an extreme situation where the amount due would create an economic hardship or be unfair (this would need to be an exceptional situation).
- If the debtor cannot find any kind of work that will provide enough income to repay the amount, like if they are disabled or have long-term illnesses.
- To cover tax obligation 1, the person who owes taxes must have no assets that could be used to pay the required tax 1.
Everyone else's best hope is to get an extension of time for their tax debts to be paid. This usually includes additional interest and penalties.
Compromise or Offer
To reduce clients' tax bills, tax settlement firms use an IRS-accepted procedure called an offer to compromise. This agreement allows some taxpayers to settle tax debts with the IRS for a lower amount than they owe. To settle tax debts, the taxpayer must provide substantial information to IRS regarding their assets and future income.
Also, offers in compromise can take up to several months to complete. Qualifying for one of these offers might be more difficult than for Medicaid. This avenue does not offer a spend-down strategy.
The approval rate of offer-in-compromise applications is usually very low. Taxpayers must show that they can prove the amount owed to be reduced.
Auditor's reviews are not always final. Taxpayers who have been audited may be able to appeal and save thousands of dollars.
IRS Form 656 states that an exceptional circumstance could lead to financial hardship. It would be something like "unplanned events" or special circumstances (e.g. serious illness) where paying more than the minimum amount may impair your ability provide for your family. "2
Price Tag for Tax Settlement Firm
Tax settlement companies often charge an initial fee of between $3,000 to $6,000 depending on the amount of the tax bill and the proposed settlement. The fee is non-refundable in most cases and often mirrors the amount the client has of cash available. This is usually the amount the company claims it will save clients on tax payments.
The IRS Office of Professional Responsibility is concerned about questionable practices in tax debt resolution. You can submit problems to the IRS using Form 14157 Complaint: Tax Resolver. 3
Clients complained to the Better Business Bureau and the Federal Trade Commission about the fact that not all of these firms produced the promised results or were a fraud. Many firms materially misrepresent the fees they charge clients. They may initially charge a lower fee but then come back for more after being involved in the process.
Rates of success for tax settlement firms
The IRS rejects all offers of compromises it receives every year, as we have stated. There are very few clients who receive satisfaction from tax settlement companies, and many of them are financially poor. Most potential settlement clients must work out payment plans with IRS to pay off their tax balances in a time frame that allows them to keep their assets and dignity.
More information on payment plans can be found on the IRS Website.
Locating a legitimate tax relief firm
Potential customers should be aware of these warning signs if they are thinking about hiring a tax settlement company. A firm promising a dramatic reduction in taxes for a customer without first obtaining a thorough financial background is likely to be a fraud. A tax agent that doesn't ask a client why they owe the IRS money isn't doing the proper investigation.
Reputable tax relief firms will ask for financial information from their customers before they give them a realistic estimate of what they can do at a fair fixed price. Prospective clients should look for a local firm that is well-established and has a strong presence in the area.
IRS Tax Settlement Warnings
Many taxpayers deal with the IRS because it is one of the most complex creditors. The IRS has the legal right to seize assets and take extreme collection measures. Many taxpayers who are in default find the agency more frightening than private creditors and credit card agencies.
This fear is what tax preparation companies play on, promising professional assistance that will solve their problems. These companies may make misleading claims and require large upfront payments. Don't fall for them. The IRS has previously warned the public about fraud firms, citing many problems here. The IRS offers many ways for you to collect what you owe.
Publication 554, The IRS Collection Process provides a detailed description and description of both the Offer in Compromise and the collection process. This information can be compared to what a tax settlement company tells you to make sure you are given the correct information before making a decision about whether to retain them.
The bottom line
There are many risks involved in the tax settlement industry. It is better to have your tax or financial advisor refer you to a qualified and experienced tax attorney who can help with unpaid taxes. You should be ready to go through extensive financial analysis as well as a lengthy bureaucratic process. They should also be ready to hear the IRS say "no" at the end.
Do Tax Relief Companies Work?
It depends. The industry is full of scams and poor business practices. False promises and high fees are used to lure customers by disreputable businesses. Still, legitimate tax settlement firms do exist. These firms are upfront about whether or not you will benefit and they charge reasonable fees.
Are Tax Settlement Companies Worth It?
It all depends. While disreputable companies might charge hundreds to thousands of dollars, they may not provide the results you are looking for. Good companies, on the other hand, charge transparent, reasonable fees and have proven track records. A flat percentage of the amount owed by the IRS is charged by some companies, such as 10%. Some companies charge an hourly fee that can range from $275 to $1,000. Companies won't accept clients with less than $10,000 tax debt.
What do Tax Settlement and Tax Relief include?
A consultation is usually the first step in the tax settlement process. A case manager will examine your tax debt and other financial details and then provide an estimate. If you decide to continue, the case manager will conduct an in-depth review of your taxes, create a plan of attack, and negotiate with IRS.
SPONSORED
Get a professional to help you develop your financial strategy
It can be difficult to find a financial advisor. However, the right professional will help you develop a strategy that meets your retirement goals. SmartAsset's tool is free and will match you with fiduciary advisors within 5 minutes. Get started today if you are ready to match with financial advisors that can help you reach your financial goals.
What are the various types of tax relief available?
There are many ways to get tax relief. There are many options for tax relief.
To see the tax relief options available to you, click on the appropriate option for your situation.
- If you are up-to-date on your tax payments, you can get tax relief
- Get tax relief if your taxes are not up to date
If you are current on your tax payments, you can get tax relief
You may be eligible for tax deductions, tax credits, and tax exclusions if you have already paid your taxes. Depending on the eligibility of each one, these can reduce your taxable income and/or your actual tax bill.
Deductions in taxes
Tax deductions allow you to lower your total taxable income, and thus reduce the tax you owe.
Tax deductions are available for various items.
- The interest you pay on your student loan or mortgage
- Property taxes are paid on your house or other properties
- Sales taxes
- Charitable donations
- Health insurance premiums
- For business or work-related expenses
All taxpayers are eligible for a standard tax deduction. This is a $12,400 deduction for a single filer and $24,800 for married couples filing jointly. These deductions cannot be claimed if you don't have the itemized deductions.
Here's an example showing how the standard deduction works. Let's suppose you earned $60,000 in the past year. You are eligible for the $12,400 deduction if you are a single individual. This reduces your taxable income by $60,000 to $48,000 ($60,000 to $12,000). You'd be in the 22% bracket so your income tax would be almost $2,500 ($13,000 vs. $10,000,560).
Tax credits
Tax credits work in a different way than tax deductions. These credits do not reduce your taxable income. Instead, they lower your actual tax bill -- that is, the total amount you owe to the government for the current year.
You can apply for the dependent credit of $2,000 per person if you have children. The $2,000 would be deducted from your final tax bill. The credit could reduce your annual tax bill by $2,000 if you owe $10,000. This is a significant amount of savings.
Tax credits are available for:
- Being a parent to a child or another dependent
- Adopting a child during that tax year
- Being old or disabled
- School-related expenses
- Childcare costs
- Contributing to a retirement fund
- Solar energy systems: Installing
>> Continue reading: The difference between a tax credit or tax deduction
Tax exclusions
In that they can reduce your taxable income, tax exclusions work in the same way as deductions. Exclusions allow you to exclude a portion of your income from your taxable earnings.
One example of this is company-sponsored health plans. These are often considered a "benefit" and a part of your salary as an employee. However, your employer's costs do not count towards your taxable income. This is one of the most common tax exclusions.
Some other tax exclusions are:
- Certain types of income earned abroad
- Disability payments
- Payments for relief from natural disasters
- Housing subsidies or rent
If you are behind in your tax payments, you can get tax relief
There are options for tax relief if you have not yet paid your taxes, owe back taxes from previous years, or have not yet paid them. You have two options: you can either repay your debts in full over time or settle your debts to pay less. Below are the current options.
Fresh Start Program
A fresh start is an IRS program for taxpayers who are behind on their taxes. You can make an Offer in Compromise to settle your debts for less than what you actually owe. These offers will be accepted by the IRS based on your income, assets, and household expenses.
You have two choices for how you make your payments if you are approved. Either you can pay a lump sum upfront (at least 20%) and then make the balance payment within five months. Or, you can pay one payment along with your offer and make the remainder monthly for the next six to two years.
Acceptance of offers in compromise is generally difficult. The IRS has a pre-qualifier tool that can help you determine if this option may be available in your particular case. Form 656B is required to apply.
Related articles:
What to do if you're being sexually harassed