Four Steps to Calculate your Tax Settlement To the IRS
Calculate your Tax Settlement To the IRSMost taxpayers are curious about the tax settlement program called Offer in Compromise program that the IRS and several states offer. In an Offer in Compromise, you settle your taxes for a predetermined payment or payments based off your financial situation. The four steps listed below will give you a good overview of how your potential tax settlement could be calculated, but you won’t know if you are eligible until you are vetted in a very detail financial analysis and the form 433-A is filled out properly.
First Step in Calculating Your Offer
First add up all of your assets you own. Some examples could include, stocks, furniture, cash, bonds, all bank accounts, equity in home, etc. So again when I say to add everything I mean everything. Once you total assets multiple the total by 80% to give you your first component of your tax settlement offer.
Second Step in Calculating Your Offer
Total your monthly income and subtract allowable expenses each month to get your disposable income. Total your income is easily as reviewing your pay stubs for most people and figuring out your monthly income. Allowable expenses is more complicated to calculate. The IRS will allow expenses for necessities such as food, clothing, shelter, cable, telephone, car payments, gas, electric and water just to name a few. The IRS doesn’t consider items such as alcohol, cigarettes, entertainment, gambling, etc. as necessities. After adding your monthly income and subtracting your allowable expenses this will get you to your disposable income for each month and second component of your tax settlement offer.
Third Step in Calculating your Offer
Third step is to multiply your disposable income by 12 or 24 months depending how you plan to pay off your possible offer. If you can borrow from friends and family and make a lump-sum payment for your tax settlement offer you will choose 12 months. All others who cannot afford a lump-sum payment will make monthly payments on their tax offer and choose 24 months.
Fourth Step in Calculating your Offer
Sam owes the IRS $32,000 in back taxes. To get a possible offer Sam adds all his assets including furniture, bank accounts, car etc., and his assets total $3,000
His disposable income is only $200 after calculating his monthly income and subtracting his necessary expenses.
He can borrow from friends and family so he will make a lump sum payment for his offer. Therefore he will use 12 months in the calculation. So Sam’s offer would be:
*Assets $3,000 * 80% = $2,400
*Disposable Income $200 * 12 months $2,400
*Offer to the IRS = $4,800
So Sam’s offer to the IRS would be $4,800 as settlement for his back taxes. If Sam’s offer is accepted by the IRS there are some terms and obligations he would need to follow for the next five years. They include the following:
*He must file all tax returns on time
*He cannot incur additional tax debts with the IRS
*He must make timely payments on his offer
*All refunds for the next five years will be kept by the IRS
The four steps given are an overview of how your potential tax settlement offer would be calculated, but an actual offer is very complex. It is highly recommended that you work through a license tax professional to see if you qualify for the Offer in Compromise program.
Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, District of Columbia, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin, Wyoming