How To Reduce Your IRS Tax Debt

Much of the tax debt in this country is not due to negligence or lack deliberate refusal to pay, but is instead the result of misunderstanding.  Like many Americans, you might be facing IRS tax debt and wondering how you will ever emerge from it.  Here are some ways to reduce your IRS tax debt.

1. First of all, consider hiring a tax professional (CPA or tax lawyer) to help you assess your situation and determine the best course for reducing your IRS tax debt.  Visit our article about how to get an IRS tax lawyer.

2. Offer in Compromise.  The IRS employs elaborate methods for calculating the amount of tax debt they can expect to extract from an individual before the statutory period expires.  Every action they take against an individual bears a cost to them as well.  If, with the help of a tax professional, you can propose a debt payment that is less than the total amount of tax debt but greater than the amount they can expect to gain, you can successfully reduce your IRS tax debt to a more agreeable level.  Such a proposal is called an Offer in Compromise.  Seek the help of a tax professional when you attempt this tax debt reduction technique; it is definitely a challenge to convince the IRS to accept an Offer in Compromise, but still a great tool in your effort to reduce tax debt.  If your Offer in Compromise fails, try to establish an installment agreement.
3. Installment agreement.  This is an agreement established between the IRS and, ideally, your tax professional.  Essentially, you agree to pay your total IRS tax debt (including interest and penalties) by paying a smaller amount each month.  Following this plan, you gradually erase your tax debt.  You really should have either a tax lawyer or a CPA representing you if your goal is to convince the IRS to accept a monthly payment that is lower than what you can technically afford.  But if your tax debt is less than $10,000, you can determine the size of the monthly payment and the IRS cannot argue as long as this monthly rate allows you to pay your tax debt fully within a three year period.
4. Partial payment installment agreement.  This option is related to the regular installment agreement, but in this case you agree to set monthly payments whose sum is still less than the total amount of your tax debt.  This will naturally require you to convince the IRS to forgive the remainder of the tax debt, which is why it's even more important to have a tax lawyer in your corner.  The experienced lawyer will be better equipped to assess your tax debt and make a successful proposal to the IRS.  If you are considering this method of reducing IRS tax debt, the Offer in Compromise will also be another possibility to consider.  
5. Remove interest and penalties.  If you can demonstrate that you cannot pay the full IRS tax debt amount due to circumstances you are powerless to affect, then you can convince the IRS to eliminate the interest and penalties that have accrued due to your outstanding tax debt.  As with other methods, it is best to enlist the help of a tax professional when attempting to reduce tax debt in this fashion.
6. Currently Not Collectible status.  This is not as much a way to reduce your tax debt as it is a method for delaying payment of the debt.  If you can convince the IRS that you have no way of paying your tax debt at this time, they will consider you "currently not collectible."  As long as you enjoy that status with them, you will not be expected to pay any of the tax debt.  Yet your statutory period does not freeze; it continues to decrease as usual. 

Don't get discouraged!  You can successfully reduce your IRS tax debt.  Consult a tax lawyer or CPA as you decide which strategy to adopt.