How To Decide Between Tax Relief Strategies

Taxes. On the one hand, they are the price we pay to live in a civilized society, and on the other, a huge expense for some that quickly becomes a financial burden.

Many people assume that their tax withholdings will be enough to carry them through tax season, and many more budget for a tax return since they overpaid their taxes throughout the year. However, the reality is that many people miscalculate or fail to account for taxable events throughout the year, which can land them in hot water with the IRS.

Since the IRS wields immense power to collect on back taxes through wage garnishment, levies, liens, and more, many taxpayers rely on tax relief to ensure they do not end up on the receiving end of IRS collections.

However, once people decide they want to pursue tax relief avenues, they may be overwhelmed with the sheer number of choices available to them, including in-house payment plans through the IRS or hiring a tax-relief specialist to organize their finances to the optimal repayment strategy.

This guide will describe the difference between DIY tax relief solutions and how a professional third-party tax relief provider will handle your case and ultimately help you decide which is better for your situation.

How Tax Relief Works

Tax relief is a broad term describing how a taxpayer can reduce their overall tax bill or mitigate the effect of tax debt on their personal finances. Since there are two primary tax relief components, let’s detail how each one works.

First, there are preventative measures that occur before you file your taxes. The IRS knows that everyone has a different financial situation, and they can call on many deductions, credits, and exclusions to reduce their total tax bill. For example, families with eligible children receive direct credits to their tax bill to offset the cost of raising kids. College students receive deductions for interest paid on student loans, and homeowners receive deductions on mortgage interest.

Without these credits and deductions, many Americans would need to pay a much higher tax bill than they end up with. Certain vocations carry income tax benefits, such as working for a registered nonprofit or for the government directly as a military member, teacher, or first responder.

However, what happens if you do everything in your power to lower your tax bill, but you still end up owing more than you can afford to pay on the due date?

The first step is to file your taxes, regardless of if you can pay them, so that you do not get hit with a delinquent filing penalty. These penalties can range from 5%-25% of your taxes owed, so avoiding them is imperative. You should do your best to report your taxes accurately since you can also be charged an accuracy-related penalty. Accuracy-related penalties are assed if you substantially underpay your taxes or report less than you should have on your tax return.

If you file your taxes on time and still owe a balance that you can’t afford, the IRS offers a couple of options depending on your financial situation. One of the most common tax-relief options is an IRS payment plan. If you get on a payment plan through the IRS, you will have a set monthly payment until your balance is paid. However, suppose your tax balance and income cause you enough financial stress that you cannot pay your daily living expenses. In that case, you may want to consider applying for an offer in compromise or a non-collectible status.

Offers in compromise enable you to settle your debt with the IRS if you can prove your total inability to make the monthly payments, but it is rarely approved. Currently, non-collectible status means that your payments will be put on hold until your income improves.

In addition to IRS-backed options, you can hire a third-party tax relief company to search for deductions, credits, and other areas you can lower your tax bill and settle amicably with the IRS. If you want to work with a tax relief company, you should do your research and find a reputable partner with excellent reviews. You will want to find a company with an established history, offers complimentary consultations, and returns if they cannot help you.

Do It Yourself

Doing your own tax relief can be time-consuming, but it may help you save money if your needs are minor.

Pros

Small balances can be resolved quickly
Many tax documents are available directly from the IRS
You will have total control of your tax relief process

Cons

Tax relief experts may save you time
If you are not an expert in the tax code, searching for proper documentation may be intimidating

Hire A Tax Relief Specialist

Hiring a tax-relief specialist can be a good option if you owe a large balance or you are crunched for time.

Pros

Tax experts, CPAs, and enrolled agents can quickly identify documents you need to present to the IRS
Tax relief specialists may expedite a settlement
You will learn a lot from tax experts in your consultation, even if you don’t work with them

Cons

Potential to be pricey – they can charge a percentage of your tax savings
No guarantee. Tax relief specialists are not allowed to guarantee that your tax bill will go down
You are still liable for your tax bill, even if they cannot do anything for you.

Final Thoughts

Tax debt is an intimidating prospect, but you do not need to panic. By communicating with the IRS and working with the resources at your disposal, you can leverage existing tax relief solutions to your advantage.

If you want to learn more about tax relief providers, please check out our other guides and reviews.