2-Minute Money Manager: Should I Hire Help to Settle an IRS Tax Bill?

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Welcome to the 2-Minute Money Manager, a short video feature answering money questions submitted by readers and viewers.

Today’s question is about getting help with money you owe to the scariest of all creditors: the IRS. It happens more often than you might think. Perhaps you don’t have enough withheld from your paychecks. Or, you’re self-employed and don’t pay enough in to meet your obligations.

The fact is, there are lots of ways to get behind the eight ball and lots of companies promising to help you settle your IRS debts for pennies on the dollar.

Can these companies do things you can’t? Watch the following video, and you’ll pick up some valuable info. Or, if you prefer, scroll down to read the full transcript and find out what I said.

You can also learn how to send in a question of your own below.

For more information on this topic, check out “Owe Back Taxes? 9 Tips to Help” and “Can’t Pay Your Taxes? Here’s What to Do.” You can also go to the search at the top of this page, put in the word “taxes” and find plenty of information on this topic.

And if you decide to hire a professional for help, don’t simply respond to the first ad you see. Instead, check out the “help with tax debt” page of our Solutions Center. It’s the same place you can find anything from a better credit card to a higher-paying savings account.

If you’ve got a question of your own to ask, scroll down past the transcript.

Don’t want to watch? Here’s what I said in the video

Welcome to the 2-Minute Money Manager. I’m your host, Stacy Johnson, and this two-minute answer is brought to you by MoneyTalksNews.com, serving up the best in personal finance news advice since 1991.

Today’s question comes to us from Tracy:

“Are there any companies that actually help with lowering an income tax debt? We’ve contacted several companies that advertise this service, and they’re asking for a substantial amount of money up front.”

Tracy, here are three things to know:

Thing No. 1: Beware of heavy advertisers

While you should always beware of any company that heavily advertises, be especially wary of this type of company that offers to lower income tax debt. Also beware of companies that ask for a bunch of money up front, which these companies frequently do.

The fact is that there’s not much any company can do for you that you can’t do yourself. The IRS has long-established programs to deal with tax debt. You probably don’t need one of these companies.

The tax-relief industry is filled with bad apples. Need proof? Go to your favorite search engine and put in the words “FTC tax relief companies.” You’ll find a long list of warnings about this industry. The Federal Trade Commission will tell you that, at best, these companies are not going to do anything you can’t do yourself. At worst, they may flat-out rip you off. So be very, very careful.

Thing No. 2: Use someone local

If you need help with a tax debt, why not go to a local CPA or enrolled agent? These are two professionals that can take your problem to the IRS and negotiate for you. They’re going to charge you about $100 or $200 an hour, but that’s a lot better than paying thousands up front to some company when you don’t even know what the result will be. So, if you are going to get representation, try a local expert.

I’m a CPA myself, and I know lots of CPAs. Any experienced CPA will definitely know people at the IRS. They deal with them a lot.

Thing No. 3: Do it yourself

You can go to this page of the IRS website, and they’ll tell you what your options are to pay delinquent taxes. There are only a couple.

The first is an installment plan, which is exactly what it sounds like. It’s like paying for a car or any other debt you pay off monthly. You’ll be paying interest, but at least it’s relatively simple.

Option two is called an offer in compromise, or OIC. This option is for people who really can’t pay their back taxes. In other words, if you can prove to the IRS that you’re incapable of ever paying what you owe, this route could get your debt reduced or even eliminated.

But that’s really all there is. There’s the installment plan. There’s the offer in compromise. It’s nothing you can’t theoretically do yourself. That being said, however, don’t be penny-wise and pound-foolish. If the money is big, I’d definitely advise hiring an experienced local expert to represent you. As I said, odds are good they know what they’re doing.

Hope that answers your question, Tracy!

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The questions I’m likeliest to answer are those that will interest other readers. In other words, don’t ask for super-specific advice that applies only to you. And if I don’t get to your question, promise not to hate me. I do my best, but I get a lot more questions than I have time to answer.

About me

I founded Money Talks News in 1991. I’m a CPA, and have also earned licenses in stocks, commodities, options principal, mutual funds, life insurance, securities supervisor and real estate.

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