What is Tax debt and how one can prevent it by using some simple techniques? As a human, there are a number of things in our lives where we don’t have any control over them. In a recent public report, almost 19 million Americans owe taxes in May 2017, on the other side IRS reports that around 10 million people face tax penalties each year.
Today we will share some tips and advice to our visitors for handling and prevention of tax debt including penalties and settling down the obligation properly.
Don’t skip filing – no matter you can pay it or not
Certified tax experts recommend filing if you have a balance after crunching all the relevant figures. No matter you have the ability to pay the amount or not it’s a later discussion.
If you will not file tax by the given deadline, you will simply face a penalty of 5% per month on the unpaid balance. This penalty can go up to 25% of total balance and can worsen the bad debt amount in the long run.
The penalty for not filing can become a criminal act, so filing is the best option even though you don’t have money to pay it. You can also file an extension to get some extra time for filing. But try to pay as much as you because at the end you have to pay it by the final deadline for the month of April.
Opt for payment settlement, delay, or request a payment plan
In case you are not able to pay your full tax balance within 12 days, IRS is willing to help you for that and manage your balance.
- Payment Settlement: This option allows negotiating a lower balance with IRS then you owe originally. But you have to prove that paying tax debt will lead towards financial hardships to become eligible.
- Delay Payment: Tax debt payment can be delayed temporary, but you have to prove that debt payment will, in turn, prevent you to meet your basic living expense. In this case, the debt will accrue penalties and interest and finally, IRS will knock at your door demanding for payment.
- Requesting payment plan: If you need more than 120 days, then you can request for a long-term payment plan or installment plan. Such payment plans may include interests and penalties on your basic debt amount and will qualify only applications owing less than $50,000 in total.
Consult with an expert
You must consider a consultation with a certified public accountant or equivalent personnel having handful of knowledge in the respective field. You must get their opinion about the best possible ways to handle your tax debt situation.
It is recommended that you work with a CPA to deal with IRS tax-related issues because they can go deeper as compared to a financial planner. Although sometimes a simple financial planner works out for people to figure out opportunities and look for a big picture.