One question we are frequently asked is: How does the IRS determine how much I can pay? How do you determine if I qualify for a resolution or not?” The answer is simple but also complicated. There is a formula the IRS uses to determine your ability to pay and once we know what your ability to pay is, we use that to determine what type of resolution we should apply for. Before you’re able to apply for any type of tax debt resolution, you will need to determine your monthly disposable income, which will determine which resolutions you qualify for.
The first step is to figure out how much money you take home each month after paying taxes. The IRS will want to know how much money you have coming in every month. Income could be the salary you receive form a job, profits, or payouts from a business you own, royalties you receive, or benefits you get each month. The IRS wants to know it all. They will look at bank statements and tax returns to make sure you are not hiding any income.
After you determine your income, you will need to determine your monthly living expenses. The IRS does have standard limits for certain expenses and may not accept all of your necessary expenses. This is when having a tax attorney could be critical! A tax attorney can help argue and negotiate to have certain expenses included that the IRS would otherwise disallow. Living expenses usually include rent or mortgage payment, utilities, foods, bills like credit cards, loans, or car payments. You may get other expenses included, but that is usually dependent on how necessary those bills are. That’s why hiring someone knowledgeable in tax law can help you argue for those expenses.
Once we have your total income and total monthly expenses, your monthly expenses are subtracted from your total income. That leftover money is considered your “monthly disposable income”. That amount is what the IRS thinks you can pay them each month for your tax debt. So if you have a lot of money left over, you could be looking at a high monthly payment. If you have little to no money left over, you could get into a good resolution and end up saving a lot of money in the end.
Having an attorney to fight for your expenses and think of creative ways to negotiate with the IRS on your resolution can be critical because the IRS wants that amount to be as high as possible! If you don’t have a lot of money left over at the end of the month, now could be the best time for you to resolve your tax issue. If you need representation to help resolve your tax issue, Polston Tax can help! Give us a call at 844-841-9857 or click below to schedule a free consultation!