After looking at the title of this article you might be wondering if it is possible to reduce your tax liability at all. But honestly, there are a million ways that the govt provides to reduce your tax liability. The first step you need to take is to find out whether your tax liability is suitable for a deduction. You may explore the chances of you not being suitable for the reduction, but over 90% of the population qualify for such a deduction. This may come to you as a surprise but there are high chances that you may not pay even a single rupee against your IRS tax debt. Let us assume that your tax debt is correct. If it is not, then your work is made simple if you file accurate returns and appeal the results of an audit. If not, here are some useful ways that can reduce your IRS tax liability.
Read more about Late or Unfiled IRS Tax Returns
1. OIC based on DATC
To be suitable for an offer in compromise based on doubt as to collectability one must portray himself/ herself by disclosing documents supporting the fact that he/she is not capable of paying their liability within due time. It might not be as easy as it sounds, but if one succeeds then such liability can be reduced to a great extent. The candidates to qualify for this are the ones that live in the middle-class category, with very little liquidity and do not possess excess equity over their debt. But, even if you do own a home with equity you are eligible to reduce 20% of such value and further subtract what you are required to pay and then get your ‘net realizable equity’. This method is useful for business and individual taxpayers and can enjoy the benefits of being qualified for OIC based on DATC.
2. Termination of a few or all of the tax penalties
If you can make a compelling statement to the IRS regarding your inability to pay the penalties, there are chances that they may waive all of the penalties and liabilities. But such statements should provide ‘ reasonable cause’ i.e. it should be a convincing reason, otherwise, the IRS will not terminate your liabilities. Common reasons are death, illness, natural disaster, fire or any other unavoidable causes to the taxpayer or his/her family member. There is also something else called ‘The first time abate’ program which is very useful to the taxpayers who have become delinquent.
3. OIC based on DATL
If you can prove to the IRS that you have substantial proof stating that you have some doubts regarding your tax liability and its accuracy, the IRS may settle for a lower amount if your statement convinces them that he/she is made to pay unfair amounts in debt. You should be able to persuade the IRS that the tax liability that is being assessed by them is something that is unjust and that you have solid concerns regarding their assessment.
