The Complete Guide to Understanding IRS National Standards

IRS Troubles? Trying to work out a payment plan with the IRS? Your first step is disclosing your entire financial situation to the IRS. This helps them determine how much you can pay each month. You calculate and decide you can pay $500 per month. But the IRS's letter says you can pay $2,000 per month. What's the deal, how can the dollar amounts differ so greatly?

National Standards The National Standards are in place to keep you from spending money owed to the IRS to subsidize your lifestyle. What does this mean? The IRS wants you living on bare minimum with basic living expenses so you can pay them more money.

Here's the National Standards for Basic Necessities for two people:

Food- $537
Housekeeping Supplies- $66
Apparel & Services- $162
Personal Care products & Services- $55
Miscellaneous - $165

These amounts are adjusted with inflation and are more than fair. You shouldn't be spending more than $162 per month on apparel when you owe the IRS thousands, isn't that fair? Other expenses like housing and utilities and transportation vary from state to state and are based on census bureau data. If you're living over these amounts, you'll need to adjust your lifestyle in order to make payments or justify the high amounts.

Two Steps for Justifying Expenses: There are two questions you need to ask yourself about your expenses in order to qualify them as necessary, basic living expenses that can be justified to the IRS.

1. Are the Expenses Necessary for you and your family to live? This includes medical bills, food, and a roof over your head. The IRS won't let you die, otherwise you can't work to pay your taxes!

2. Are the Expenses Necessary for you to earn money? The IRS will allow you to spend money to make money- it will directly benefit them, after all. This includes ordinary and necessary business expenses, nothing extravagant.

If the expenses don't fit under these two spectrums, it will be harder justify the expense, if not impossible.

4 Big Non-Allowable Expenses: The following expenses are erroneously believed to be allowable expenses. These are all considered "luxuries" and will never count as basic living expenses.

1. Private School- Send the kids to Public School, this is not a basic expense.

2. College Tuition- College Tuition paid for your children does not count. However, you can count the cost of College for yourself. A higher education means more money earned, which the IRS can seize to pay for the debt.

3. Cable- Get used to reading books and watching public television. Hey, this Tax Debt might be the best thing that ever happened for your intellect.

4. Credit Cards- This one really hurts. You cannot pay your creditors when you owe the IRS. Creditors are voluntary lenders, the IRS is not.

Three Ways to Play the IRS System

1. Internet- tell them you need the internet for work and your job search, they're likely to let it slide. It's a good idea actually use it to search for additional jobs to pay the IRS...
2. Magazine/Newspaper Subscriptions- Again, if it's related to finding work and you can prove it, it's allowed.

The higher your expenses, the lower your payment amount. If you need help negotiating a lower payment with the IRS, consider working with a reputable CPA or Tax Negotiation company that can work with you to reduce the payment amount. Just don't go listing luxuries like Cable and Private School as basic necessities, the IRS will find out and you will be penalized with higher payment amounts.