Posted by SG Quality Accounting Corp.

Tips For Managing Tax Debt & Avoiding Problems With The IRS

Tips For Managing Tax Debt & Avoiding Problems With The IRS

While most people are used to being in debt when purchasing cars, homes, and other things, being indebted to the IRS is a whole different matter. Since the government does not appreciate it when people do not pay the tax owed, the penalties for tax debt are often harsh. Sadly, many people try to ignore their tax debt problems, hoping that they will magically disappear. Instead, it gets worse. If you are having trouble with the IRS, here are some tips on managing your tax debt.


Make it a priority

First, make your IRS tax debt your financial priority. Because the agency can confiscate your business assets or even your home, it's often suggested that paying off a tax debt is a higher priority than paying off a mortgage. So instead of dealing with wage garnishments and tax liens for years, take tax debt management seriously and get it resolved as quickly as possible.


Loans and lines of credit

If you own a business and need to pay taxes to the IRS, get a bank loan, or use a line of credit, sometimes this can be your ticket to paying off your tax debts. While the interest you end up paying is probably not tax-deductible, it should be well below the interest rates charged by the IRS. In most cases, the IRS charges unpaid tax fines that accumulate at 0.5% per month or 6% per year. This, along with the three additional percentages charged to your balance based on your federal short-term interest rate, means you'll have an interest rate of at least 9% until you pay your taxes.


Retirement loans

In addition to traditional bank loans or lines of credit, you can also borrow against your retirement plan or retirement accounts, such as a 401(k), to pay off your tax debt. While you will lose some return on your investment and be subject to interest when you return the money, the difference will be much smaller than it could be if you continue with IRS debt. However, don't be like a lot of people who panic and just take money out of their retirement account. If you do that and make it a taxable distribution, you'll have even more money to pay. 


Installment Payment Plans

If you don't have a viable way to immediately pay off all of your tax debt, don't give up. Instead, you can work with the Internal Revenue Service to set up an installment plan to resolve your issue. If you choose this option, you can have up to 72 months to pay off your debt. Plus, if your debt is less than $10,000, you won't even have to disclose financial information because you can set up your plan on the irs.gov website. But, if you owe more than $10,000, the IRS requires you to submit detailed information about your monthly income and expenses. It is always best to consult a professional before entering into an installment agreement with the IRS.


An OIC (offer-in-compromise)

If you think your financial situation is as bad as it can get, you have the option of making what is called a "pledge" to the IRS. In other words, it is you asking the IRS to reduce the amount of money you owe the agency. Even if at first it seems like you can use a magic wand and suddenly owe the IRS thousands of dollars less, don't count on it. According to the IRS, your financial situation would have to be extremely serious for the agency to accept this option. This option usually works if you've suffered a catastrophic medical event or lost your job. However, if your income is still very high, don't expect the IRS to lower your tax bill.


Is your debt collectible?

While the IRS wants the money it says you owe them, it doesn't even want to waste a lot of energy, time, and money trying to collect debts that may not be collectible. Finally, any decision the IRS makes regarding how to collect your tax debt will be reduced to the current amount of disposable income, capital, and assets you hold, which can be used to pay off debt and other related factors. During the height of the COVID-19 pandemic, the IRS has been much more lenient in trying to collect taxpayer debt, but this will not last forever. So, if you have unpaid tax debts, hitting while the iron is hot can give you a head start that you won't have in a few months.

If you try to do it yourself when it comes to IRS tax debt, it is almost certain that an already difficult situation will get worse. To get your questions answered and come up with a viable plan to resolve your issue, consult a tax expert you can count on, such as STEVEN GELLER, for advice and guidance.


FOR MORE INFORMATION ON HOW SG QUALITY ACCOUNTING, CORP. CAN BEST HELP YOU WITH YOUR TAX FILING NEEDS, PLEASE CLICK THE BLUE TAB ON THIS PAGE.


THANKS FOR VISITING.

SG Quality Accounting Corp.
Contact Member