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How to Reduce an IRS Tax Liability in 5 Steps

Dealing with a significant IRS tax debt is not for the faint of heart, especially if the debt is large and if there are penalties and fees accruing over time. 

 

But here’s the most important thing to know: you can reduce your tax liability, and you can regain control of your financial situation. It takes some know-how and patience (and in some cases, professional help from us), but it can certainly be done. 

 

Here are five steps you can take to reduce your IRS tax liability either on your own or with expert assistance from us. 

 

Whichever road you decide to go down, know that there is light at the end of the tunnel and you can move beyond this with persistence and discipline. 

 

Step 1: File Your Taxes, Even If You Can’t Pay. 

 

The most crucial first step in reducing tax liability is filing your taxes on time. Failing to file can lead to even more penalties and interest, worsening your financial situation. 

 

The IRS imposes both a failure-to-file penalty and a failure-to-pay penalty, and the former is usually more severe. Even if you don’t have the funds to pay immediately, filing your return avoids the larger penalties and keeps you in compliance with IRS regulations.

 

If you’re unable to pay the full amount, consider setting up a payment plan or exploring other options with the IRS. This shows the IRS that you’re making a good-faith effort to resolve your tax debt, which can work in your favor when negotiating for reduced penalties.

 

[ Dealing with the IRS on your own can be daunting. If you’re unsure of your options or how to proceed, contact Traxion Tax for expert guidance. We can help you navigate complex tax rules and reduce your tax burden effectively.

 

Step 2: Explore IRS Tax Relief Programs.

 

The IRS offers several programs designed to help taxpayers reduce or eliminate penalties and lower their total liability. Some of the most popular programs include:

 

  • Installment Agreement: This allows you to pay your tax debt over time through monthly payments, making the financial burden more manageable.
  • Offer in Compromise (OIC): If you qualify, the IRS may settle your tax debt for less than you owe. This program is ideal for those who cannot afford to pay their full liability.
  • Currently Not Collectible (CNC) Status: If you’re experiencing financial hardship, the IRS may temporarily halt collection efforts. During this time, penalties and interest will still accrue, but you won’t be required to make payments.

 

These programs have specific eligibility criteria, so it’s crucial to understand which option is right for your situation. An experienced tax professional can help you assess your options and choose the most beneficial path.

 

Step 3: Claim All Eligible Tax Deductions and Credits.

 

One of the best ways to lower your tax liability is to ensure you’re taking full advantage of all available tax deductions and credits. Deductions reduce the amount of your income that’s subject to tax, while credits directly reduce the amount of tax you owe.

 

Some common deductions include:

 

  • Charitable contributions
  • Medical expenses
  • Mortgage interest
  • Student loan interest
  • Retirement contributions

 

Additionally, tax credits such as the Earned Income Tax Credit (EITC), Child Tax Credit, and education credits can substantially lower your overall tax bill. Carefully review your situation or consult a tax professional to identify all eligible deductions and credits.

 

Step 4: Negotiate Penalty Abatement.

 

If your tax debt includes penalties, you may be able to request penalty abatement from the IRS. Penalty abatement can remove or reduce the penalties assessed on your tax bill, significantly lowering the overall amount you owe.

 

The IRS offers penalty relief for specific circumstances, such as:

 

  • First-time penalty abatement: For those who have a clean record of filing and paying taxes on time.
  • Reasonable cause: If you missed a payment or filing deadline due to circumstances beyond your control, such as a medical emergency or natural disaster.

 

A tax professional can help you file the necessary paperwork and present your case for penalty abatement to the IRS.

 

Step 5: Get Professional Help

 

Reducing your tax liability can be a complex and time-consuming process. The IRS tax code is extensive, and making a mistake can lead to increased debt, further penalties, or even legal action. 

 

Hiring a professional tax resolution service, like Traxion Tax, ensures that your tax debt is handled correctly and efficiently. We can help you explore your options, negotiate with the IRS on your behalf, and work to minimize your tax liability.

 

Don’t wait until your tax problems get worse. Contact Traxion Tax today for expert tax resolution services. Whether you owe a small amount or are facing significant IRS debt, our team is here to help you find the best solution for your unique situation.

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