Tax debt can accumulate for various reasons, such as an unexpected financial downturn, errors in tax filing, or simply falling behind on payments. Regardless of the cause, taking decisive action is the key to overcoming tax debt.
Ignoring the problem will only make it worse, but relief is possible by facing it head-on and exploring the resources available. Tax Law Advocates experts provide invaluable guidance in navigating these complex situations. Let’s delve into some top ways to deal with overwhelming tax debt.
1. Assess Your Financial Situation
The first fundamental measure is to clearly understand the situation with the tax burden on the client. This is done by enumerating all your liabilities, including the cumulative balance to be paid to the Internal Revenue Service, and matching this figure with your total income and expenses. Understanding your financial position as accurately as possible is essential to make the right choices about which debts you can realistically pay off.
After defining your financial structure, you need to pay attention to your expenses and categorize your debts. All debts require attention, but if you focus on paying off the debts costing you more in interest or have severe penalties, then tax debt should be at the top. It also assists in efficiently utilizing your resources since you can direct your efforts on the most critical aspects.
2. Communicate with the IRS
One of the worst things one can do in this case is to avoid communication with the IRS. The IRS is more accommodating to taxpayers who seek help than those compelled to seek the agency’s help. If you still need help to meet the required tax amount, contact the IRS. They have several programs intended to help struggling taxpayers, including installment agreements, IRS offers in compromise, and the IRS Hardship Program.
An installment agreement permits the taxpayer to pay the amount of the tax assessed in installments; an offer in compromise allows the taxpayer to pay less than the entire amount of the tax owed, provided the taxpayer meets some conditions. On the other hand, the IRS Hardship Program puts a hold on collection activities that would otherwise compel you to pay your tax dues if doing so will lead to severe economic strain.
3. Explore Professional Help
Tax consultants, including tax lawyers, certified public accountants (CPAs), and enrolled agents, are entitled to provide professional services and deal with the Internal Revenue Service on behalf of their clients. They are tax experts and can easily guide you on all matters relating to tax laws to get the best results. Although there might be some charges to having a professional, the advantage of getting expert advice is handy when dealing with large amounts of tax debt.
4. Consider Bankruptcy as a Last Resort
Although it is always advisable to avoid filing for bankruptcy as the last option one should take to solve his or her tax problems, it could sometimes help in cases where an individual is pressed with large amounts of taxes to be paid. Tax debts cannot be wiped out through bankruptcy, but some conditions permit their discharge. In general, tax debts should be at least three years old, and the tax returns must be filed by two years before filing the bankruptcy petition.
If you think bankruptcy could be possible in your case, consult a bankruptcy attorney to help you assess and navigate the process and the possibility of discharge of tax debts. However, one must point out that the bankruptcy process does not end with filing; instead, it has long-term implications on a person’s financial and legal aspects; therefore, one should think through it many times before filing the case and seeking professional advice.
5. Implement a Financial Plan
Establishing and adhering to a budget is crucial to controlling and, in the future, eliminating tax liability. This should also entail a budget that highlights your income, expenditures, and how you are going to clear your debts. It is advisable to budget well and avoid spending money on other things that are not so important, as this will help you save more money that you can use to pay your taxes.
For example, setting aside some money for future taxes can help prevent such a situation from happening again. It is also important to consider opening a separate account for saving for your taxes so that you are well prepared come tax season.
Conclusion
Eradicating a heavy tax burden is always a challenging task, but a feasible one at that. If your financial situation is evaluated, the IRS is contacted, professionals are consulted, bankruptcy is considered, and a strict financial plan is followed. A person can learn how to get out of the debt that he/she owes. Remember always to do something and not to leave the field of play empty-handed; one should try all the available choices. However, it is essential to note that help is not a distant dream, and one can get rid of tax debts through sheer determination and appropriate strategies.
