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3 Common Tax Debt Mistakes to Avoid

April 17th

For most people, the stress is finally over once you file your federal income taxes. For others, however, the problems are just beginning once they realize that their tax obligation is more than the expendable cash in their bank account. This common scenario often leads to long-term tax debt with the IRS, but there are many people who try to pay down their tax debt immediately. Instead of hiring a tax debt lawyer to help solve their problems, they make financial mistakes that have lasting consequences.

Be Smart When Paying Back Tax Debt

While dealing with the IRS is a serious issue, it’s important to be smart about it and ensure your actions don’t hurt you financially in the long run. Many people who make the rush to pay off tax debt often do so at their own expense. Common mistakes include:

Raiding your retirement savings. Remember, retirement accounts are almost always tax deferred. When you pull money out early, not only do you pay a large penalty fee, but you also have to consider that the funds withdrawn are taxable to you. Regardless, it’s a poor move to take money away from your retirement savings.
Skipping payments. When people fall into tax debt, one of the things they want to do to pay back the debt quickly is skip payments. Whether they skip a payment for next year’s taxes or skip a payment on their mortgage, they make a promise to themselves that they’ll only skip this once and double-up next time. The only problem is that they face a penalty, and come the next payment, they can’t double up as planned. Now they’re behind on two fronts. Speaking with a tax debt lawyer can help you find a solution that doesn’t damage your other payments.
Ignoring it. There are certain people who use their ability to ignore something as a coping mechanism. They fail to open the mail, or to pay attention to deadlines because they can’t meet the tax obligations anyway. However, it’s important to show your good faith effort no matter how deep you are in tax debt. You never know how it might help you!

 
 
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