Archives for July 2025

Understanding Offer in Compromise: Can You Settle for Less?

July 23, 2025 by Maurie West Leave a Comment

If you’re overwhelmed by tax debt and struggling to see a way out, the IRS has a program that might be the lifeline you need. It’s called an Offer in Compromise (OIC), and it allows taxpayers to settle their tax debt for less than the full amount owed. While this program can offer significant relief, not everyone qualifies, and the application process can be complex.

In this blog, we’ll break down everything you need to know about Offers in Compromise—how they work, eligibility criteria, and how to determine if it’s the right option for you. If after reading this you need further assistance please contact WesTax, Inc by calling 1-941-893-1791

What Is an Offer in Compromise?

An Offer in Compromise is a program offered by the IRS that allows eligible taxpayers to resolve their tax debt for less than the total amount owed. The IRS agrees to accept a lower amount if it believes the taxpayer cannot reasonably pay the full debt through traditional means, such as a payment plan or asset liquidation.

This program provides a fresh start to taxpayers who are experiencing financial hardship, allowing them to settle their debt and move forward without the looming burden of back taxes.

How Does the Offer in Compromise Process Work?

The Offer in Compromise process involves several key steps:

1. Submitting Your Application
Taxpayers must submit Form 656, Offer in Compromise, along with Form 433-A (OIC) for individuals or Form 433-B (OIC) for businesses. These forms provide the IRS with detailed financial information, including income, expenses, and assets.

2. Paying the Application Fee
Most applicants are required to pay a $205 application fee. However, this fee may be waived for taxpayers who qualify as low-income.

3. Choosing a Payment Option
When submitting an OIC, you must propose how you plan to pay the offered amount. The IRS offers two main payment options:

Lump-Sum Cash Offer: Pay 20% of the offered amount upfront and the remaining balance within five months of acceptance.

Periodic Payment Offer: Make the first payment with your application and continue paying monthly installments while the IRS reviews your offer.

4. IRS Evaluation
The IRS carefully reviews your application, assessing whether the amount you’re offering is the most they can reasonably expect to collect. This evaluation includes a thorough analysis of your financial situation.

5. Decision
If the IRS accepts your offer, you must comply with all tax laws for the next five years to avoid defaulting on the agreement. If the offer is denied, you may appeal the decision or explore other resolution options.

Eligibility Criteria for Offer in Compromise

Not everyone qualifies for an Offer in Compromise. To be considered, you must meet specific eligibility requirements:

1. All Tax Filings Must Be Current
You must have filed all required tax returns before submitting your OIC application.

2. Required Estimated Payments Made
If you’re self-employed, you must be current on estimated tax payments for the current tax year.

3. No Open Bankruptcy Proceedings
Taxpayers in active bankruptcy are not eligible for an Offer in Compromise.

4. Demonstrated Inability to Pay in Full
The IRS evaluates your Reasonable Collection Potential (RCP), which is based on your income, expenses, and assets. If your RCP is less than the total tax debt, you may qualify for an OIC.

Reasons the IRS May Accept an Offer in Compromise

The IRS generally accepts Offers in Compromise under three circumstances:

1. Doubt as to Collectibility
This applies when there is little chance the IRS will collect the full tax debt due to your financial situation.

2. Doubt as to Liability
If there’s a legitimate dispute over whether the assessed tax debt is correct, the IRS may accept an OIC.

3. Effective Tax Administration
Even if you can technically afford to pay the full amount, the IRS may accept an OIC if collecting the debt would create economic hardship or be unfair due to special circumstances.

Benefits of an Offer in Compromise

Settling your tax debt through an Offer in Compromise has several advantages:

Reduced Financial Burden: You pay less than the full amount owed, freeing up resources for other financial obligations.

Fresh Start: Resolving your tax debt allows you to move forward without the fear of liens, levies, or garnishments.

Peace of Mind: Eliminating the stress of unpaid taxes can improve your overall well-being.

Challenges of the Offer in Compromise Process

While the OIC program offers significant benefits, it’s not without challenges:

1. Complex Application Process
Submitting an accurate and compelling OIC application requires extensive documentation and knowledge of IRS procedures.

2. Low Acceptance Rate
The IRS accepts only a fraction of OIC applications each year, typically around 30%.

3. Continued Compliance Requirement
Even after your offer is accepted, you must comply with all tax laws for five years. Failure to do so can void the agreement.

How to Improve Your Chances of Success

To increase your likelihood of having an Offer in Compromise accepted:

Be Honest and Thorough: Provide accurate and complete financial information.

Seek Professional Help: A tax resolution specialist can help you prepare a strong application and negotiate with the IRS on your behalf.

Stay Current with Tax Obligations: Make sure all required filings and payments are up to date before applying.

Is an Offer in Compromise Right for You?

An Offer in Compromise can be a valuable tool for resolving tax debt, but it’s not the best solution for everyone. You may benefit from exploring alternative options, such as:

Installment Agreements: Spread your tax payments over time.

Penalty Abatement: Request a reduction or elimination of penalties.

Currently Not Collectible Status: Temporarily halt collection efforts if you’re facing financial hardship.

Each taxpayer’s situation is unique, so it’s essential to consult with a professional to determine the most appropriate strategy.

Conclusion

An Offer in Compromise provides a potential path to financial freedom for taxpayers burdened by overwhelming tax debt. While the process can be complex and challenging, the rewards of a successful OIC can be life-changing.

If you’re considering an Offer in Compromise, don’t navigate the process alone. Contact Westax, Inc https://www.westaxinc.com/ or call 1-941-893-1791 to schedule a consultation with an experienced tax resolution specialist. Let us help you take the first step toward resolving your tax debt and regaining control of your financial future.

#taxes #taxproblems #irs #irsproblems

The One Big Beautiful Bill Act: What You Need to Know About the Latest Tax Law Changes OBBBA

July 16, 2025 by Maurie West Leave a Comment

On July 4, 2025, President Trump signed the One Big Beautiful Bill Act (OBBBA) into law, bringing a wave of significant changes to federal tax legislation. This comprehensive package impacts individuals, businesses, and even international taxpayers.

We’re breaking down the key provisions to help you understand how these updates might affect your tax planning.

Key Individual Tax Provisions

Many of the Tax Cuts and Jobs Act (TCJA) rates and provisions are now permanent, offering more stability for taxpayers:

Permanent Lower Tax Rates and Brackets: The tax rates from 2017 are now permanent, with an inflation adjustment for certain brackets in 2025.
Permanent Standard Deduction: The nearly doubled standard deduction amounts are now set permanently. For 2025, these are:
- Single & MFS: $15,750
- Head of Household: $23,625
- Married Filing Jointly: $31,500
Increased Child Tax Credit: The nonrefundable Child Tax Credit rises to $2,200 per child starting in 2025 and will be indexed for inflation.
Boosted Estate and Gift Tax Exemption: This exemption is permanently increased to $15 million per individual ($30 million for married couples) in 2026, indexed for inflation.
SALT Deduction Cap Increase: The state and local tax (SALT) deduction cap goes up to $40,000 per household, with a phase-out for higher earners. This will revert to $10,000 in 2030.
New Charitable Deduction for Non-Itemizers: Starting in 2026, you can deduct charitable contributions above-the-line ($1,000 for single, $2,000 for joint filers).
Temporary Deductions: From 2025-2028, new deductions are available for qualified tips, overtime pay (with limitations), and an enhanced $6,000 deduction for seniors (age 65+ with income below certain thresholds). You can also deduct up to $10,000 in interest on loans for U.S.-assembled passenger vehicles.
Permanent Changes to Other Deductions: The moving expense deduction is largely terminated (except for Armed Forces). Limits on home mortgage interest and personal casualty loss deductions (now including state-declared disasters) are made permanent. Several other credits, like the adoption credit and employer-provided childcare credit, are also made permanent.

Important Business Tax Provisions

Businesses also see significant changes and permanency for key deductions:

Permanent QBI Deduction: The Qualified Business Income (QBI) deduction remains at 20% and is now permanent.
Restored Bonus Depreciation: 100% expensing for qualified property is back for property placed in service after January 19, 2025.
Increased Section 179 Expensing: The maximum expense for qualifying property rises to $2.5 million, with a phase-out threshold of $4 million (indexed after 2025).
Immediate R&E Expense Deduction: Domestic research and experimental expenses can be immediately deducted in 2025.
Permanent Excess Business Loss Limitation: This limitation is now permanent, with existing loss carryforward rules maintained.
Business Interest Deduction Calculation Change: The interest expense limitation will now be calculated using EBITDA (earnings before interest, taxes, depreciation, and amortization) instead of EBIT.
Changes to International Tax: Beginning in 2026, the deduction percentages for FDII (foreign-derived intangible income) and GILTI (global intangible low-taxed income) are reduced. The BEAT (base-erosion and anti-abuse tax) rate increases from 10% to 10.5%.
Higher Reporting Thresholds: The Form 1099-K reporting threshold reverts to $20,000 and 200 transactions. The Form 1099 reporting threshold for services increases to $2,000 in 2026.
Renewed Opportunity Zones: These provisions are made permanent with changes, including a narrower definition of “low-income community,” effective in 2027.
Clean Energy Credit Terminations: Several clean energy credits from the Inflation Reduction Act are terminated.

Have questions about how the OBBBA might impact your personal or business tax situation? Don’t hesitate to reach out for a consultation!

#taxes #taxproblems #irs #irsproblems #offerincompromise #lt11 #paymentplan

Are You Eligible for Penalty Abatement? Learn the Requirements

July 15, 2025 by Maurie West Leave a Comment

Tax penalties can significantly increase the amount you owe to the IRS or state tax agencies, turning an already challenging financial situation into an overwhelming one. However, you might not have to pay those penalties in full. The IRS offers penalty abatement programs that can reduce or eliminate penalties in certain situations.

In this blog, we’ll discuss what penalty abatement is, the eligibility requirements, and how to determine if you qualify. If tax penalties are adding to your stress, this blog will help you explore a potential solution. If you need further assistance with your tax debt, please reach out to WesTax, Inc by calling 941-893-1791

What is Penalty Abatement?

Penalty abatement is a relief option provided by the IRS to reduce or eliminate certain penalties imposed on taxpayers. While the IRS charges penalties for late filing, late payment, and non-compliance with tax laws, they recognize that there are legitimate reasons why taxpayers may fail to meet their obligations.

Common penalties that may qualify for abatement include:

Failure to File penalties for not submitting your tax return on time.

Failure to Pay penalties for not paying the full amount of tax owed by the due date.

Accuracy-Related penalties for underreporting income or other tax inaccuracies.

If granted, penalty abatement can significantly reduce the financial burden, but you must meet specific criteria to qualify.

Eligibility Requirements for Penalty Abatement

The IRS evaluates penalty abatement requests based on specific criteria. Here are the most common scenarios under which taxpayers may qualify:

1. Reasonable Cause
The IRS may grant penalty relief if you can show that your failure to comply was due to a reasonable cause. Acceptable reasons include:

Serious illness or injury affecting you or a family member.

Natural disasters, fires, or other unforeseen events.

Inability to obtain necessary financial records.

Reliance on incorrect professional advice.

You’ll need to provide documentation to support your claim, such as medical records, insurance reports, or legal documents.

2. First-Time Penalty Abatement (FTA)
If you’ve been compliant with your tax filings and payments in the past, you may qualify for First-Time Penalty Abatement. To be eligible, you must meet the following criteria:

No penalties for the prior three tax years (except estimated tax penalties).

All required returns filed for the current year.

Any outstanding tax due has been paid or arrangements made to pay.

FTA is one of the most commonly granted forms of penalty abatement because it rewards taxpayers with a history of compliance.

3. Administrative Waivers
In some cases, the IRS may issue administrative waivers when penalties are incorrectly assessed or if there are systemic issues with tax agency operations. If this applies to you, the penalties can be removed without significant documentation requirements.

Steps to Request Penalty Abatement

If you believe you qualify for penalty abatement, here’s how you can take action:

1. Assess Your Eligibility
Review your circumstances and determine whether you meet the criteria for reasonable cause, First-Time Penalty Abatement, or an administrative waiver.

2. Submit a Request
Requests for penalty abatement can be made in writing or over the phone. If you’re submitting a written request, you’ll need to send Form 843, Claim for Refund and Request for Abatement, to the IRS, along with supporting documentation. For simpler cases, you can call the IRS directly to make your request.

3. Gather Supporting Documents
If you’re applying under reasonable cause, collect the evidence needed to support your claim, such as medical bills, repair invoices, or a letter from your tax professional.

4. Wait for a Decision
The IRS will review your request and notify you of their decision. This process can take several weeks or even months, depending on the complexity of your case.

Common Mistakes to Avoid When Requesting Penalty Abatement

Submitting a request for penalty abatement can be challenging, and mistakes may lead to delays or denials. Here are some common pitfalls to avoid:

1. Failing to Provide Sufficient Documentation
Your request must be backed by evidence. Without proper documentation, the IRS is unlikely to approve your claim.

2. Overlooking the First-Time Penalty Abatement Option
Many taxpayers don’t realize they qualify for First-Time Penalty Abatement. Review your history to see if you meet the criteria.

3. Ignoring the Importance of Compliance
You must be current with all tax filings and payments before the IRS will consider your request. Ensure your current tax obligations are up to date.

4. Procrastinating
The sooner you address penalty abatement, the better. Delays can lead to additional penalties and interest accumulating on your tax debt.

When Should You Apply for Penalty Abatement?

The ideal time to apply for penalty abatement is as soon as you’re aware of the penalties. Prompt action can prevent additional interest and penalties from accruing. Common scenarios where you should consider applying include:

Receiving a penalty notice from the IRS or state tax agency.

Experiencing a life event or hardship that prevented timely compliance.

Discovering errors in penalties assessed by the IRS.

Learning about your eligibility for First-Time Penalty Abatement.

The Role of a Tax Resolution Specialist in Penalty Abatement

Navigating the penalty abatement process can be complex, especially if your case involves significant penalties or multiple years of non-compliance. A tax resolution specialist can:

Assess Your Eligibility: Evaluate whether you qualify for penalty abatement and recommend the best course of action.

Prepare Your Request: Draft a compelling request with all necessary documentation to support your case.

Communicate with the IRS: Act as your representative, handling all correspondence and negotiations with tax authorities.

Advocate for You: Protect your rights as a taxpayer and ensure you receive fair treatment throughout the process.

Conclusion

Tax penalties can create significant financial stress, but penalty abatement provides a pathway to relief. Whether you qualify due to reasonable cause, First-Time Penalty Abatement, or an administrative waiver, taking action can reduce your financial burden and help you regain control of your tax situation.

If you’re unsure of your eligibility or need help navigating the process, a tax resolution specialist can guide you every step of the way. Don’t let penalties hold you back, contact WesTax, Inc today! https://www.westaxinc.com/ or call 1-941-893-1791 to start resolving your tax issues today.

#taxes #taxproblems #irs #irsproblems