How much does tax relief cost?

Typical costs of tax relief services

The majority of straightforward tax relief cases cost between $1,000 and $5,000. Simple issues like penalty abatement will be less. Drawing up an offer in compromise (a request for the IRS to forgive a portion of tax debt due to financial hardship) is often the most expensive case for tax relief services.

Tax relief companies can also help with things like navigating tax debt, negotiating penalties and gathering documents to show reasonable cause of financial hardship. Luckily, many offer a free consultation. Calling around for a free initial consultation can give you a better sense of whether a company’s services are a good fit for your needs.

» MORE: How does tax relief work?

Factors affecting tax relief costs

Tax relief companies all offer similar services, but their pricing can vary widely. Below are some factors to consider when deciding which company to work with.

• Minimum tax debt requirements: Most tax relief services require a minimum amount of tax debt to take your case. That’s because it might not be worth the cost of the service if your tax debt amount isn’t very high. The most common threshold is $10,000, but each service varies. Most often, a company’s minimum tax debt amount is prominently displayed on its website.
• Pricing structure: Tax relief services offer pricing in a variety of ways. Some charge hourly rates, while others charge a flat fee for their services. Still, others will collect money based on a percentage of the tax you owe to the IRS or state agency. Knowing these terms will help you decide whether working with a tax relief company is good for your situation.

Are tax relief services worth the cost?

If your tax debt is manageable — or if you could simply benefit from a straightforward payment plan — it might be best to work directly with the IRS to negotiate these terms. That way, you’re not having to pay extra for a tax relief service.

But a tax relief service can be an invaluable asset if you’re finding it difficult to get out from under your tax debt. Unpaid taxes and penalties add up quickly, thanks to ongoing interest the IRS applies to outstanding tax debts. A tax relief company has expertise in dealing with the IRS to get the most successful outcome.

Consider the price of the tax relief company’s services and compare that to the potential savings you’ll see if the service successfully navigates your situation with the IRS. This cost-benefit analysis will help you decide whether using a service is worth it.

» MORE: Tax relief statistics

Alternatives to professional tax relief services

Perhaps the first thing most people do when they owe money in taxes, penalties or fees is to reach out to the IRS directly. In many cases, this is all needed to remedy the situation, whether you need extra time to pay or a plan to help you successfully pay your tax debt.

Working with the IRS directly means you won’t have to pay additional fees to a tax relief company. Another alternative is to hire a private tax attorney who isn’t attached to a tax relief company.

Often, you can hire a local tax attorney to establish a workable plan for reducing or eliminating your tax debt. Call around to find a tax attorney who offers a free initial consultation.

How to identify a tax relief scam

Unfortunately, plenty of people and companies prey on individuals who struggle to pay their taxes. As such, it’s important to carefully vet any tax relief service you use. The biggest red flag to be aware of is a company that requires a large down payment to negotiate with the IRS on your behalf.

A scam company will collect your payment, string you along and ultimately tell you that the IRS has “rejected” your claim. To be on the safe side, stick with reputable tax relief companies. Here are a couple of green flags to look for.

• Transparent pricing: When you reach out to a tax relief company, be sure you have a clear understanding of its pricing structure. A legitimate tax relief company will be forthcoming with details about their pricing and what factors could cause the price to change.
• Money-back guarantee: Spending money on a tax relief service involves a certain amount of risk. If the IRS rejects your claim, you can end up with an even larger financial burden. That’s why some reputable tax relief companies offer a 100% money-back guarantee on their services. Companies offering this benefit include Five Star Tax Resolution and Anthem Tax Services.