A tax settlement is defined as an arrangement between you and the IRS in which a tax dispute gets resolved. The settlement usually features some compromise from both sides. For example, the IRS may decide to forgive some outstanding tax debt while insisting the taxpayer still pay X amount of dollars.
Though the taxpayer may hope for complete debt forgiveness, it is difficult to get out of the situation entirely scot-free. At the end of the day, any debt forgiveness is better than none. There are situations where it makes sense to take the proposed settlement, and other times you may decide to push back and not settle quite yet. In this article, we will examine some of the top benefits of an IRS settlement.
#1 You Pay Less Than Originally Owed
In almost every settlement, the IRS will agree to forgive some portion of your tax debt. It could represent a very little amount or hundreds of dollars, depending on how much you owe as well as your current financial situation. Additionally, having legal representation could also help warrant more debt forgiveness.
Regardless, the obvious and number one benefit of reaching an IRS settlement is that you can expect to pay less than what you originally owed. It may also excuse you of some or all of the tax penalties and late fees associated with the debt, which is a bonus.
It is important to remember that just because a settlement is proposed by the IRS, you are not obligated to take it. You can continue to battle the IRS all the way up to U.S. Tax Court if you feel like you are not getting a fair agreement.
#2 Prevents Tax Liens
A tax lien is a government’s claim against some or all of your assets based on failure to pay a tax debt. Tax liens can get complicated, depending on the circumstances.
Your local government, state government, and the U.S. federal government all have the right to enforce liens against your assets. Therefore, you should not let your tax debt get so out of hand that you are forced to deal with tax liens. The legal implications, costs, and time spent resolving these issues are extensive. However, once you reach a settlement agreement with the IRS, the government cannot place a lien on your home, business, or other assets.
#3 Prevents Wage Garnishments
The IRS can also punish those who fail to pay their tax debt by placing a tax levy on one or more of their bank accounts. The IRS can also enforce wage garnishments, which forces your employer to deduct a certain amount of each check to pay off your tax debt.
If your debt has gotten out of control and you are worried about paying it off, ignoring the issue will not make it go away. To avoid wage garnishments and tax levies, you should try to negotiate a settlement with the IRS.
#4 Saves Your Personal Property and/or Business
No one deserves to lose their home or their small business, both of which you have invested time and money into. Unfortunately, when it comes to tax debt, the IRS can seize these types of assets if you are not paying back your debt.
When you reach a settlement, you may still owe the IRS, but at least you can rest easy knowing that your home, automobile, and business cannot be seized. The IRS can no longer go after these assets so long as you pay off the debt within a specified period, avoid late payments, and do not do anything else that may go against the agreement.
#5 Helps Improve Your Credit Score
IRS penalties like tax liens and levies can destroy your credit score. It is one of the many reasons taxpayers try to avoid them. As a result, when you reach a settlement with the IRS, you bypass tax liens and levies, which can help keep your credit score from plummeting.
It may not be high right now, but at least your credit score will not suffer any more damage. You never know when you may need a loan for a car or mortgage, so it is wise to avoid having your credit score tanked by the IRS.
#6 Provides a Fresh Start
The IRS used to criminalize delinquent taxpayers so heavily that some ended up in jail as a result of ignoring tax debt. Thankfully, the possibility of going to jail these days is not as likely—but that doesn’t mean avoiding your debt doesn’t cause serious problems.
A tax settlement is one of your final chances at a fresh start with the IRS. It can help reduce the debt owed to a more manageable amount and provides a light at the end of the tunnel.
Levy & Associates Tax Help
At Levy & Associates we want to help you get that fresh start with the IRS. We’ll help negotiate a tax settlement that is fair and just. Contact us today at 800-TAX-LEVY, or visit www.levytaxhelp.com.