Dealing with Tax Debt

Handling tax debt is different from how you handle other debts, but you need not worry because for sure you will be able to work a good plan that will reduce your balances. Here are several ways that you can start drafting out a plan:

Check your tax return documents for any corrections

The first thing that you have to do is to collect all your documents of tax return and check if all the entries are correct and that you were not overcharged for something. Nevertheless, if you do not have any idea about this type of things you may opt to get debt help from a certified public accountant of financial counsellor to help you check if there is a discrepancy between the figures.

Your financial assistant will also help you in determining which plan of action you intend to do against your debts. After doing that, he or she may suggest the following tax debt reduction strategies.

Negotiate your tax debts with the Internal Revenue Service

Once you have the total amount that you need to pay, one option that you can do is to go directly to the office of the Internal Revenue Service. Personnel from them can assist you and suggest options and plans that you can do for you to be able to pay your balances. Some of the programs they have include the following:

  1. Monthly tax debt program. This is one of the most known strategies that you can do, the internal revenue service will allow you to pay for your debts on an instalment basis payable. However, the catch about this strategy is that your current tax debt amount will accumulate interest charges over the months of paying period. Apart from the penalty and interest, you will also need to shell out a user fee amounting to $105.
  2. The internal revenue service can also offer you what they call as “hardship consideration.” This is the approach wherein they will give you a few months to save up for your debts and for your financial status to work out. However, you still need to pay interest fees, penalty charges, and application fee.
  3. Another tax debt solution is filing for bankruptcy. But, if you think that you can still do something about your balances then do so. Applying for account foreclosure can directly affect your credit score and can make future transactions with the bank difficult.

Retirement Savings There When You Need It

There are times when we find ourselves in financial pinches perhaps an unexpected medical bill or car repair or we could just be going through a rough patch and need some help. These are the times when we should consider a 401k loan because they are different than traditional bank loans in that they come with very low interest rates, there is no credit check and you have longer to pay them back which is done through payroll deductions. Though there are tax implications involved, it still may be your best bet.

All companies are different and have different rules attached. For instance, some will allow you only one 401k loan per twelve months whereas others will allow you two and the maximum loan amount is typically fifty percent of what you have contributed. Also, some plans prevent you from contributing more until the loan is paid back. In addition, there is also a 401k hardship withdrawal in which you can take if there is an immediate need for the funds such as primary residence eviction prevention or funeral expenses for the death of a spouse. This type of loan is a little different in that it requires additional paperwork and you can obtain one even if you have maxed your regular loan limit. There again, you may not be allowed to contribute to your account for a minimum of six months. This is actually a withdrawal and not a loan so you are not required to pay it back.

Should you change jobs and still owe money on your retirement loans, it may be a good idea to consider a 401k rollover. That way, you will not lose any of your contributed funds. If you are already fully vested with your present company, the face value of the account is yours however, cashing it out may involve early withdrawal penalties. Your outstanding loans, any penalties and a twenty percent tax will be taken right off the top and could most literally leave you with very little in the end so rolling it over into a new account would most likely be your best option in that situation.

Ways to Settle IRS Debt

Each person wants to settle tax debt in any way possible and there a lot of ways on how to settle IRS debt. Each way to pay these debts depends upon the account and the status of the individual. It is very important to settle tax debts because if not, you may be submitted to high interest rates and increasing penalties. To know appropriate procedures on how to settle IRS debt, it is advisable to deal directly with the Internal Revenue Service (IRS).

Actually, the first and the most basic step is to communicate with the Internal Revenue Service about your accurate budget for paying your tax debts. You need to be honest with your budget so that the IRS can adjust lesser amount than the huge account you owe if you have small budget. You can even settle IRS debt through a partial payment instalment agreement. This means that if you are not able to meet the requirements to pay a certain amount for an agreed period, you may be able to appeal for a smaller monthly payments.

If you are having a hard time understanding how to settle tax debt, you may already need a certified public accountant or a lawyer to help you deal with this tax problem. These tax analysts and experts will also be able to set you up with the correct settlement method and possibly lower the amount you owe.

When the time comes that you have already gone through with your problems in tax debts, make sure that you will be able to pay right in time to avoid these kind of situation for the second time around. If you are having financial problems, make sure that you communicate with the Internal Revenue Service about your situation. But still, it would be nice if you get rid of your IRS debt.

In some circumstances that you are financially unable, the Internal Revenue Service will review your status every couple of years. If you are proven eligible that you cannot settle tax debts, they will stop collecting against you. If you continue to be uncollectible for 10 years from the date you are assessed, you will be no longer responsible for the amount of tax debt you owed from the Internal Revenue Service.

  • IRS delays filing of key deductions (chron.com)