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With the April 15 deadline for filing 2023 federal income taxes fast approaching, many Americans are completing their taxes and discovering whether they will receive a refund or owe a tax debt. Last year, nearly two-thirds of filers received a tax refund, according to IRS data. On the other hand, the IRS reports that 18.6 million taxpayers owed over $316 billion, an average debt of around $17,000.
If you owe money, it’s still wise to file your taxes on time, even if you can’t pay the full amount. Remember, filing late can lead to penalties, and you may be able to set up a payment arrangement with the IRS.
Enlisting the help of a tax relief service can help in some situations, but it’s essential to understand how they work, what you’re getting and how much they cost.
Explore your top tax relief options online now.
Are tax relief services worth it? Here’s what experts think
Here’s when tax relief services may be worth it and when they’re not.
Yes, tax relief services are worth it (and why)
Many tax debts can be resolved quickly and easily with the IRS. For example, if the IRS has levied penalties on your overdue taxes, you may be able to request penalty relief to waive fines if you have a valid reason.
For more serious tax issues, consulting your tax advisor or getting help from a tax debt service may be worth it. According to Kristine Stevenson Seale, an enrolled agent who negotiates tax debt settlements with the IRS on behalf of her clients, tax relief services can help taxpayers navigate tough situations with the IRS.
“Tax relief services can be good for those who either can’t pay the monthly amount the IRS says they should pay, as well as for those that have been out of filing compliance for a period of time and want to ‘come clean’ but are afraid,” Seale says.
Seale, who owns Advocate Financial Coaching, also says tax relief services can be worth it for those who file their taxes but still owe a large tax bill after years of not paying them.
Find out how a tax relief service could help you today.
No, tax relief services aren’t worth it (and why)
While tax relief services can help you deal with the IRS to reduce your tax debt, they’re not for everyone.
“If the taxpayer is just currently short of liquid funds to pay taxes due, an offer in compromise may not be helpful since the IRS would look to other assets as a means to pay the taxes,” says Mark Luscombe, a principal analyst for Wolters Kluwer’s Tax and Accounting Division North America.
Luscombe reminds taxpayers that relief services impose fees to help you get relief from the IRS, but you may be able to get that relief directly from the IRS and avoid the fee. Before proceeding, a phone call to the IRS may be in order to better understand your options.
Important factors to consider
As with any financial service company, doing your due diligence is essential.
“The reputation of the company is the most important consideration a tax debtor should make when deciding whether to use a tax relief service,” says Logan Allec, a CPA and owner of tax relief company Choice Tax Relief. “Ideally, you would use a company owned by a licensed tax professional such as a certified public accountant, enrolled agent or tax attorney.”
If you want to work with a tax relief service, Seale recommends another critical step: “Get the agreement in writing, how much will be paid [and] what level of communication can be expected. And if the relief service won’t put that in writing—pass.”
The bottom line
If you owe money to the IRS, it’s critical to be proactive and address the debt head-on. Contact the IRS to discuss your options. Additionally, a tax preparation service may be able to help you understand how much you owe and develop a strategy to address your debt.