When applying for IRS relief programs such as an Offer in Compromise (OIC), Currently Not Collectible (CNC) status, or even certain installment agreements, the IRS takes a close look at your finances. One of the most important parts of that review is your allowable expenses, the costs the IRS agrees are necessary for basic living.
Many taxpayers are surprised to learn that the IRS does not simply accept every bill they pay. Instead, they rely on standardized guidelines to determine what expenses are reasonable and how much income should be available to repay tax debt.
1. What are national standards?
National standards are fixed amounts set by the IRS for basic living costs such as food, clothing, personal care, and miscellaneous household expenses. These amounts vary based on household size but do not change based on how much you actually spend. Even if your real expenses are higher, the IRS may only allow the standard amount unless special circumstances apply.
2. What are local standards?
Local standards apply to housing, utilities, and transportation. These amounts vary by geographic location and are designed to reflect regional cost differences. For example, allowable housing costs in Las Vegas may differ significantly from those in other parts of the country.
3. Can I claim all my actual expenses?
Not always. If your expenses exceed IRS standards, you may need to provide documentation and a clear explanation showing why the higher cost is necessary. Without justification, the IRS may reduce your expenses to the standard amounts, which can increase what they believe you can pay.
4. Are medical expenses allowed?
Yes. Necessary medical expenses are generally allowed, especially when supported by documentation. This can include insurance premiums, prescriptions, and ongoing treatment costs.
5. Do child care or education expenses count?
Sometimes. The IRS may allow child care expenses if they are necessary for you to work. Certain education costs may also be considered if they are required for employment or health-related reasons.
Understanding how allowable expenses work helps you prepare accurate financial disclosures, avoid surprises, and improve your chances of qualifying for IRS relief.
IRS relief programs are based on rules, not guesswork. If you’re unsure which expenses count or how the IRS will evaluate your situation, professional guidance can make the process smoother. We assist clients nationwide and locally in Las Vegas, Nevada, and St. George, Utah. Reach out at 702-533-8984 or candy@numbercruncherllc.tax.
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