It’s April 15 – otherwise known here in America as Tax Day. Today is the deadline for filing your tax return with the Internal Revenue Service. I sincerely hope everyone is done with their taxes by the time you read this but, if not, it’s time to file an extension! Click this link to see what you need to do to file an extension, keeping in mind that you must still pay whatever taxes you owe on time.
I thought today would be an appropriate day to revisit the post on Tax Debt that was included as part of the Debt Free Challenge. Here we go…
We’ve all heard the old cliche, “Nothing in life is certain except for death and taxes”, right? It’s a sad but true reality in today’s world. Getting behind on your taxes can be scary since the Internal Revenue Service has the power to make your life pretty miserable if they so choose. They can and do file liens and seize property with the law completely on their side. It’s best to stay current with your tax filing and liability, but what if you can’t afford what you owe? You do have options.
I will admit to writing this next sentence with a whole lot of hesitancy. If you have the ability to borrow money to pay off your tax liability, you should do it. Even the IRS suggests finding other avenues to pay your taxes if you owe more than you have available to you to pay. The process of paying it off will be a whole lot easier if you can arrange it on your own terms without involving the IRS. Charge it to a credit card and add that debt to your debt payment snowball or avalanche. OK-I can breathe again…
If your tax liability is more than what you can afford to pay and you find yourself with no alternative, the IRS has a program in place where you can pay your taxes through an installment plan. There are fees but they are pretty reasonable, and if you are a low income taxpayer you can apply to have the fees waived. In a nutshell, if your tax liability is not more than $10,000 and you can pay it back within 3 years while staying in full compliance with all tax laws, you can be granted a guaranteed installment agreement.
Instructions for how to qualify and how to apply for an installment agreement can be found in IRS Publication 9465.
Offer in Compromise
If you are truly in over your head with no foreseeable way out, you can apply for an Offer in Compromise. The IRS will consider your application and, after a thorough investigation, will determine whether your tax liability can be reduced or eliminated.
The Offer in Compromise is truly a last resort. This type of tax relief is rarely granted and has very specific qualifications. You must be current with all of your tax filing and you cannot be in an active bankruptcy filing.
The full instructions for applying for an IRS Offer in Compromise can be found here.
Paying an Outside Firm to Reduce Tax Debt
If you watch TV or listen to radio you’ve no doubt heard commercials for firms offering to get you out of your tax debt. If you have tax debt and opt to engage one of these companies, proceed with extreme caution. Articles I found written by Credit Karma and Investopedia both offer sound advice for working with Tax Debt Settlement companies.
Avoiding Tax Debt
The best way to keep on the right side of the IRS is to make sure you don’t incur an unaffordable tax liability in the first place. If you are employed by a company that provides you with a W-2 form every year, you should perform a periodic withholding check up to make sure you are having enough withheld from your paycheck. The IRS has a great tool for doing just that-you can find it here. Be sure to have your current pay stubs available before getting started.
If you are a contract employee or self-employed, filing your quarterly taxes is an absolute MUST. You can find information for filing your quarterly taxes here. If dealing with quarterly tax filing is not your thing, a qualified bookkeeper can help you keep up with it. Some tips for finding a good one can be found here.
Tax compliance can be complicated, and if your tax situation is more complex than what you are able to handle you should find a trusted professional to help you. If your situation is simple, however, you should be able to handle all of this yourself. Trust your ability, take a deep breath, and get it done.
Be well and God Bless-until we meet again…
Note-All tax information contained in this post is intended as a resource for informational purposes only and should not be construed as professional tax or investing advice.