How to reduce taxes owed to the IRS

The most direct way to reduce what you owe is to claim every deduction and credit you're may have access to to on your tax return — many homeowners and workers miss thousands of dollars in deductions each year simply because they don't know they exist. If you've already filed and owe money, you can file an amended return to claim deductions you missed. If you owe more than you can pay right now, the IRS offers payment plans and hardship programs that can lower your monthly burden or, in rare cases, reduce the total amount owed.

The strategy that works depends on whether you haven't filed yet, have already filed, or are dealing with a debt you can't pay. Each path has different forms, timelines, and outcomes — and some can be combined. For example, you can file an amended return while also setting up a payment plan on the reduced amount.

Key Takeaways

  • Homeowners can deduct mortgage interest, property taxes, and home office expenses; workers can deduct unreimbursed job expenses, education costs, and charitable donations.
  • If you've already filed, you can file Form 1040-X (Amended U.S. Individual Income Tax Return) within three years to claim deductions you missed and reduce what you owe.
  • The IRS offers installment agreements that let you pay over time, and an Offer in Compromise program that may settle your debt for less than the full amount in specific hardship situations.
  • Currently Not Collectible status temporarily pauses collection while you're in financial hardship, though interest and penalties continue to accrue.
  • Working with a tax professional or the IRS directly through their payment plan portal can clarify which option fits your situation.

Deductions you may have missed on your return

Homeowners can deduct the interest portion of their mortgage payments (not the principal), property taxes paid to your state or local government, and home office expenses if you use a dedicated space for work. You can also deduct energy-efficient home improvements like new windows or insulation in some cases. Keep receipts and mortgage statements to document these.

If you're employed, you can deduct unreimbursed job expenses, professional development courses, union dues, and work-related tools or uniforms. Self-employed people can deduct a much wider range of business expenses — vehicle mileage, supplies, equipment, home office rent, and health insurance premiums. Charitable donations to may have access to organizations are deductible, as are medical expenses that exceed a certain threshold. Student loan interest up to $2,500 per year is also deductible, even if you don't itemize other deductions.

The catch is that you have to claim these on your return to get the benefit. If you filed without claiming them, you can file an amended return using Form 1040-X within three years of the original filing date. The IRS will recalculate your tax, and if you claimed deductions you didn't before, you'll owe less — or may even receive a refund.

Filing an amended return to claim missed deductions

To amend a return you've already filed, complete Form 1040-X for the tax year in question. The form asks you to show the original amount you reported, the correction you're making, and the new amount. You'll need to attach any supporting documents — receipts, mortgage statements, charitable donation records — that prove the deduction is legitimate.

Mail the completed Form 1040-X and supporting documents to the IRS address for your state, which is listed in the form's instructions. Processing typically takes 8 to 12 weeks. If your amended return results in a refund, the IRS will send it to you. If it results in a smaller amount owed, your debt is reduced by that amount.

You can file an amended return even if you're already in a payment plan or owe back taxes. The amended return is processed separately, and any refund or reduction is applied to your account. However, if you're being pursued by the IRS for collection, filing an amended return doesn't pause that process — you'll still need to address the debt through a payment plan or hardship program.

Installment agreements: paying over time instead of in full

If you owe money and can't pay it all at once, the IRS allows you to set up an installment agreement — a monthly payment plan. There are two main types: a short-term agreement (120 days or fewer to pay in full) and a long-term agreement (more than 120 days).

For long-term agreements, you can request a specific monthly payment amount, and the IRS will work with you to set a plan you can afford. You'll owe setup fees (typically $31 to $225 depending on how you pay) and interest and penalties continue to accrue on the unpaid balance, but you avoid wage garnishment or bank levies as long as you stay current on your monthly payments.

You can set up a payment plan through the IRS website using their Online Payment Agreement tool, by phone at 1-800-829-1040, or by mailing Form 9465 (Installment Agreement Request) with your tax return or separately. If you set up the plan online or by phone, you'll get immediate confirmation and can start paying within weeks.

Offer in Compromise: settling for less than you owe

An Offer in Compromise (OIC) is a program where the IRS may accept a lump-sum payment that's less than the full amount you owe, if you can show you're in genuine financial hardship and paying the full amount would create undue hardship. This is not forgiveness — it's a settlement. The IRS uses a formula based on your income, expenses, and assets to determine whether an offer is reasonable.

To be considered, you must be current on all required tax filings and payments for the current year, and you must have filed all overdue returns. You'll need to complete Form 656 (Offer in Compromise) and Form 433-B (Collection Information Statement) or Form 433-A (if you're self-employed or have business income), which detail your financial situation. The IRS charges a $225 application fee, though this fee may be waived if your income is below certain thresholds.

Processing an OIC typically takes 2 to 6 months or longer. The IRS will review your financial information and either accept, reject, or counter your offer. Acceptance is not common — the program is designed for situations where the IRS determines collection is unlikely or would cause severe hardship. If your offer is rejected, you can appeal or return to a standard installment agreement.

Currently Not Collectible status for temporary hardship

If you're experiencing severe financial hardship — job loss, medical emergency, or other crisis — you can request Currently Not Collectible (CNC) status. This temporarily pauses IRS collection activities like wage garnishment, bank levies, and liens. You won't make payments during this period, but interest and penalties continue to accrue on your debt.

CNC is not a permanent solution. The IRS will periodically review your account (typically every two years) to see if your financial situation has improved. If it has, collection activities resume. The debt itself doesn't go away — it remains on your account indefinitely until you pay it, it's forgiven through an OIC, or it becomes too old for the IRS to collect (the statute of limitations is generally 10 years, though this can be extended in certain situations).

To request CNC status, contact the IRS at 1-800-829-1040 or work with a tax professional. You'll need to provide financial information showing you have no ability to pay. The IRS may grant CNC status over the phone if your situation is clear, or they may request Form 433-A or 433-B for review.

Working with a tax professional or the IRS directly

You can handle payment plans and amended returns on your own, but the process involves IRS forms, financial documentation, and deadlines. A tax professional — a CPA, enrolled agent, or tax attorney — can file amended returns, negotiate payment plans, and represent you in discussions with the IRS. They charge fees (typically $150 to $500 per hour or a flat rate for specific services), but they often identify deductions you'd miss and can save you money by structuring your situation in the most favorable way.

If you prefer to work directly with the IRS, you can call 1-800-829-1040 during business hours, visit an IRS office in person, or use the IRS website to set up a payment plan online. The IRS also has a Low Income Taxpayer Clinic program in many areas that offers free or low-cost help to people with limited income. These clinics can review your return, help you file an amended return, or assist with payment plan setup.

Frequently Asked Questions

Can I reduce my tax bill by claiming deductions I didn't know about?

Yes. If you've already filed, you can file an amended return (Form 1040-X) within three years to claim deductions you missed. The IRS will recalculate your tax, and if the deductions lower your bill, you'll owe less. Common missed deductions include mortgage interest, property taxes, home office expenses, and charitable donations.

What's the difference between an installment agreement and an Offer in Compromise?

An installment agreement is a payment plan where you pay the full amount you owe in monthly installments over time. An Offer in Compromise is a settlement where the IRS may accept a lump-sum payment that's less than the full amount, but only if you can prove financial hardship. OIC is harder to obtain and takes longer to process.

Will setting up a payment plan stop the IRS from garnishing my wages?

Yes. Once you're in an active installment agreement and making payments on time, the IRS will not pursue wage garnishment or bank levies. However, if you miss a payment, collection activities can resume. Interest and penalties continue to accrue on the unpaid balance throughout the agreement.

How long does it take to get approved for an Offer in Compromise?

Processing typically takes 2 to 6 months or longer, depending on the complexity of your financial situation and how quickly you provide requested documents. The IRS will review your Form 656 and financial statements to determine whether your offer is reasonable. Approval is not may provide and depends on whether the IRS believes collection is unlikely or would cause severe hardship.

What happens to my debt if I'm in Currently Not Collectible status?

The debt remains on your account and continues to accrue interest and penalties. CNC is temporary — the IRS reviews your account periodically (usually every two years) to see if your financial situation has improved. If it has, collection activities resume. The debt doesn't disappear unless you eventually pay it, settle through an OIC, or it becomes too old for the IRS to collect.