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Archive for October, 2012

City To Sell Liens To Recoup Back Taxes

October 22nd

tax lienBack taxes are troublesome for everyone involved. For debtors, wage garnishment and tax liens can result; causing even further financial trouble if the debts aren’t resolved. While the IRS has a low tolerance for tax debts, many other creditors are a little more flexible. However, one city is tired of playing nice and is looking to more serious consequences in order to collect on back taxes.

Collecting Debts

Pittsfield, MA reports being owed an estimated $3 million in back taxes. Dating back as far as 20 years, these uncollected debts are taking a toll on the city’s finances. Those who owe these taxes are being warned that the city will soon be outsourcing the collections to private firms and investors; who are likely to take serious action to collect.

City officials have notified owners of more than 300 properties that their home will become part of a tax title auction in early 2013. Winning bidders of the title auction will pay the full amount of the tax lien owed on the title and will, in turn, walk away with the right to pursue recovery efforts on delinquent property-tax payers. Property owners who fail to pay the private collector could lose their home faster than a lender-initiated foreclosure, less than 30 days in some cases. Property owners who do pay the private collector are likely to face up to 16% interest on their debt, also required to be repaid in order to protect their home.

 

 

Keeping Tax Debt Away

October 15th

Tax debt can be serious business, especially if you aren’t prepared for it. While we may  not always be able to avoid owing the IRS money, there are ways to ensure you aren’t taken by surprise or put into a financial hardship over tax liabilities.

Simple Steps

One of the biggest determining factors in whether you will owe money to the IRS or receive a refund is your tax withholding amount. This is the amount that you claim on your W-4, which is based on your personal status and whether you have any dependents. The higher level of withholding, the more you are essentially prepaying towards your tax bill for that year. This generally means that more will be taken out of your paycheck each time. For many people, having a higher withholding can ensure they won’t owe at the end of the year.

Even if you don’t want to claim a higher level of withholding on your W-4, you can still take measures to avoid IRS debt. First, be sure to know which tax deductions you may qualify for and keep accurate documentation of those expenses, like receipts and billing statements. If you are self-employed, have a tax professional calculate your estimated taxes and make quarterly payments throughout the year. This will prevent you from ending up with a large tax bill at the end of the year. Last, consider setting aside money throughout the year that can be used to cover any gaps in what you may owe the IRS.

If you have any questions about how to avoid tax debt, or to find help with resolving back taxes, contact a tax  debt lawyer to review your case.

 

Tax Deduction Dependency

October 10th

tax deductionMany of us count on certain tax deductions to lower our tax liability bill each year. While many of these deductions are in place to do just that, depending on them each year to produce a refund or keep us out of owing the IRS is not a good strategy.

Future Fallout

Some of the most notable tax deductions come from policies designed to help the economy flourish, or spur recovery in today’s market. The mortgage interest deduction and mortgage debt forgiveness relief are two examples. Many homeowners count on being able to lower their taxable income by the amount paid towards their mortgage loan in interest. For many people, this saves the hundreds of dollars each tax season.

Similarly, those struggling with mortgage debt and forced to engage in a short sale or foreclosure may have been given a waiver of the delinquency balance on the home once sold. Set to expire at the end of this year, the IRS may soon require people to claim this balance waiver as income on their 2013 tax return. Further, many people could be facing steep tax bills if these deductions aren’t renewed soon.

There are a handful of other deductions that people tend to rely on each year to help make tax time less of a financial burden. However, leaning on such volatile crutches could lead to serious tax debt problems if we aren’t careful. Instead, people should be reviewing their withholding levels and saving money, in the event they owe at the end of the year.

 

 

Certain Tax Cuts Set To Expire

October 3rd

Some tax cuts enacted in early 2000 are expected to end this year. When they do, the additional taxes and related payments are estimated to cost some Americans almost $5,700 per year. Understandably, many are speculating on how the expiry of these cuts will affect their financial standing. Median household income decreased sharply after 2008, and although it’s improving, it’s still below the levels of the year 2003.

Paying Your Debt As Quickly As Possible

No matter how large your amount of back taxes, the IRS will work with you, assuming you have come forward in good faith and can demonstrate your inability to pay your tax debt. The IRS has processes in place to set up payment plans and reduce the amount you owe.

First, consult with a qualified tax debt lawyer to analyze your previous returns closely. It’s not uncommon to discover that due to errors in previous filings, you may actually owe less than you think.

Once you know exactly how much you owe, it’s time to consider options. If you owe so much that you cannot pay off the debt now, then you should look at the Offer in Compromise. Designed for taxpayers who are experiencing financial hardship, the Offer in Compromise can reduce your tax debt by a significant amount based on income criteria.

However, let’s say you can pay off your tax debt — but only over time. Then the Installment Agreement is likely your best option. With the Installment Agreement, you’ll make a monthly payment that over time will satisfy your tax debt.

 
 
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