Owing a federal or state tax agency a significant debt can be financially and mentally draining. Even when you know there are debt settlement options, it can be hard to know how they help you. Understanding the benefits and qualifications of tax settlement options for Florida residents can make it easier to assess what options are right for you.
When you owe taxes to a tax agency, you usually have to pay the debt in full. This is also one of the most effective ways to avoid the financial consequences of owing tax debt. But many taxpayers are facing immense tax debt largely because they don’t have the financial ability to pay it back in full, especially as penalties and interest continue to grow.
When this is the case, it might be possible to negotiate another method of payment. The ideal method depends on your financial ability and other important factors.
How Can You Settle Your Tax Debt?
When you owe the Internal Revenue Service (IRS) federal taxes, there are a few options to limit the financial hardship this debt causes you. This includes:
Penalty Abatement
Penalty abatement lets you remove specific penalties from your tax liability and related interest. You can either remove penalties through first-time abatement or due to reasonable cause.
First-time abatement could apply to failure to file, failure to pay, and failure to deposit penalties. Reasonable cause penalties are those you were assessed despite acting in good faith and with reasonable cause. Sometimes, an event outside of your control prevents you from meeting your tax obligations, despite your acting with reasonable care.
Penalties the IRS assessed on individual, trust, and estate income taxes totaled over $20.2 billion in 2024. Clearing penalties can greatly reduce your overall liability and make it more manageable to pay.
Installment Agreement
An installment agreement is a payment plan with the IRS. You have to pay the entirety of the tax debt you owe, but you are given a set period of time to do so, rather than needing to pay it all at once.
An estimated 3.4 million new installment agreements were established in 2024 with the IRS. While you are paying the installments, most IRS collection actions are suspended, helping you avoid additional financial hardship. Some payment plans continue to accrue interest over time, so it’s important to carefully negotiate the plan with the help of an attorney. Remaining on top of an installment agreement is crucial to prevent further IRS action.
Innocent Spouse Relief
The IRS will forgive certain tax debts if they were created by your spouse or ex-spouse due to understated joint-filed taxes, and you were not aware of the error. It only applies to taxes for employment or self-employment income. There were 1,405 appeals for innocent spouse cases in the nation in 2024. Certain things can disqualify you from innocent spouse relief, such as agreeing to an offer in compromise for the year that you are requesting relief.
Currently Not Collectible Status
When you are facing temporary financial hardship and cannot pay any of your tax debt, the Currently Not Collectible status can pause collection actions for your debt. You will still be responsible for the debt when your financial circumstances improve, but this can give you the time you need to better prepare. However, this will not stop penalties and interest from accruing during the waiting period, and you could also face a lien on your property.
Offer in Compromise
An offer in compromise means you pay the IRS an amount less than you owe, and then the rest of your tax liability is cleared. It is an ideal method when you cannot pay the full amount you owe, or you would suffer financial hardship if you did. Though very useful, few taxpayers are able to get an offer in compromise. The IRS accepted nearly 7,200 offers in compromise in 2024, out of nearly 163,400 offers made.
FAQs
Q: What Is the Ideal Way to Settle Tax Debt?
A: The ideal method to settle tax debt will rely on the taxpayer, their debt, and their financial situation. For many taxpayers, an offer in compromise sounds ideal, but not many taxpayers qualify. Instead, you first have to try other options to resolve the debt, such as applying for penalty abatement or entering into an installment agreement.
When you have the support of an attorney, they can assess your income and resources to determine the right method of debt settlement.
Q: Should I Hire a Tax Attorney for My Tax Debt Settlement?
A: You should hire a tax attorney if you do not have the financial ability to pay back your debt and instead are trying to negotiate with the tax agency. An attorney helps in many ways, including by assessing your financial information and gathering proof of your inability to pay. They determine what debt settlement options are available to you and what is right for your financial future. An attorney negotiates with the agency on your behalf.
Q: Does the IRS Forgive Tax Debt?
A: Yes, the IRS can forgive tax debt, although specific circumstances have to apply. Forgiveness exists through an offer in compromise, although an amount has to be paid, and you must meet many qualifications. There is also a period of ten years that applies to tax debt, after which the IRS cannot recover the debt. However, there are numerous circumstances that can pause this timeframe or extend it, giving the IRS more time to collect.
Q: What Is the Cost of a Tax Debt Settlement Attorney?
A: The cost of a tax debt settlement attorney depends on their experience, the complexity of your case, the type of tax law services you need, and the location of the firm. It can feel counterintuitive to pay for the help of an attorney when you are dealing with financial difficulty because of tax debt, but an attorney can save you significant money. An attorney can help find the most financially beneficial resolution and avoid costly errors.
Hire a Tax Lawyer in Florida
With the support of the right attorney, it is much easier to understand tax settlement options for Florida residents and which most effectively protect your financial interests. TaxSmith, LLC, holds years of tax law experience. Contact us today and let us assess your options.
