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Little Known Ways to Eliminate Tax Debt

March 15th

Tax debt is no different from any other kind of debt – it can lead to a host of financial complications that can ruin your credit score, such as bankruptcy. Even worse is that you have to deal directly with the IRS! Fortunately, eliminating tax debt doesn’t need to be as stressful as it often is. In fact, several tax debt elimination strategies can even help taxpayers in the long run. By working with a tax debt lawyer, taxpayers can regain their financial footing.

If You’re in Tax Debt, You Can Escape

First and foremost, when facing financial difficulties, taxpayers should still continue to pay as much of their tax debt as possible. By paying what they can now, they can avoid higher penalties and interest rates. Once a financial hardship makes itself apparent, taxpayers should take a pro-active approach and visit their closest IRS office to explain their predicament. Typically, the IRS is willing to work with these taxpayers and can set up a short-term agreement ranging from 60 to 120 days to allow the taxpayer to regain the ability to pay.

Other options include:

Paying back tax debt with an installment agreement. These payment plans allow taxpayers to pay back debts according to what they afford. Both the taxpayer and IRS agree upon the amount per month.
Qualifying for a temporary delay. If facing a significant hardship, the taxpayer could ask for a temporary delay where they won’t be penalized for late payments. This time period allows the taxpayer to recover financially.
Offering a compromise. By settling for a tax debt amount that is less than they owe, taxpayers can save money. However, you must be able to document your ability to pay, income, and asset equity to be considered for this option.

By pursuing these options, taxpayers can avoid defaulting on their tax debt, thereby protecting their credit scores from significant damage. Seeking the advice of a tax debt lawyer can help you negotiate with the IRS as well as determine what strategy is best for you.


5 Tax Debt Rules When Filing for Bankruptcy

March 1st

For those struggling with tax debt, filing for bankruptcy is an appealing option. When individuals choose to discharge under Chapter 7 or Chapter 13, filing for bankruptcy is one of the five ways for individuals to escape tax debt. However, tax debt must meet certain requirements to be discharged. Unless all of the following conditions are met, individuals will continue to owe tax debt past Chapter 7 and Chapter 13 bankruptcy.

 Tax Debt and Bankruptcy

To be able to file for bankruptcy and discharge income tax debt, an individual must:

  • Ensure the taxes are income taxes. Any taxes such as state or payroll tax are not eligible for elimination.
  • Have a tax assessment at least 240 days old. Before bankruptcy can be filed, the IRS must have assessed the tax at least 240 days prior to the filing.
  • Be a lawful citizen. In other words, the individual must have not committed fraud or willfully evaded tax payments. Anything such as using a false social security number on a tax return or other fraudulent activities void the bankruptcy option.
  • Have tax debt that was due 3 years ago. If you are in debt from taxes either this year or last year, you are not eligible to file for bankruptcy to eliminate tax debt. Unpaid taxes must have been due a minimum of 3 years ago.
  • File a tax return. Individuals must not only file a tax return, but it must have been filed at least 2 years before filing for bankruptcy.

Unless all five of these conditions are met, an individual struggling with outstanding tax debt cannot file for bankruptcy to eliminate it. Fortunately,  tax debt lawyers have the experience and wisdom needed to help individuals overcome their financial struggles.


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