Tax debt can be discouraging. Whether you were taken by surprise or knew it was coming, you need to get out of this debt as soon as possible.
Here are some tips.
It is never fun to be in debt. However, when you end up in this situation because of laws, rather than bad habits, it can be alarming and very frustrating.
Because tax laws are so extensive and tedious, just understanding the extent of your debt from taxes can be mind boggling.
This is unlike most other debt situations, as there are real legal ramifications for those that ignore this issue.
However, there are things you can do to reduce the amount that you owe and get the help that you need.
Have You Filed?Whether or not you have filed returns for the delinquent taxes will determine what your starting point is.
If you have not filed, that might actually be good news. In fact, you might find that you don't owe at all. If you do, however, there are ways to mitigate the expense.
For those that have filed and do owe you will want to have an accountant look closer at your return. This will enable you to find deductions that you might have missed, effectively reducing the amount of the outstanding debt. In order to do so, you will have to put in an amended return. You can then look at ways to pay off the debt.
How to Pay Tax Debt
There are really only five ways that you can take care of debt from taxes.
Don't buy into the hype surrounding advertising and shady companies that offer you anything but these options.
Your first two options involve negotiating installment payments with the IRS, through your accountant or attorney.
You may be required to pay the full amount with payment terms that you can handle.
Another option is to agree upon a reduced amount and pay installments until that is eliminated.
Like credit card debt, tax debt can be settled. In this situation, you work with your professional to agree upon a lower payment amount. In order to qualify for this option, you need to be willing to put up an up-front payment, or be willing to do a high dollar, but short term, payment plan.
If you can eliminate the agreed settlement amount in three or four payments, this might be your best solution.
Another possibility is having the tax debt deferred. This doesn't eliminate the issue, but rather gives you a reprieve. In the meantime, you should save what you can so that it is available when a more permanent arrangement is made.
The only way to permanently eliminate the debt from taxes is to file for bankruptcy. Both Chapter 7 and Chapter 13 bankruptcy encompass tax debt. You will have to meet all the requirements that the judge presents, however, so the actual terms may vary.
If you debt is under $10,000, you may be able to manage it on your own. For amounts over $25,000, professional assistance is advisable.
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