In 2018, the Internal Revenue Service (IRS) reported that Americans owed more than $131 billion in back taxes, penalties and interest.
There are several reasons why people incur large amounts of tax debt. Job loss, bodily injuries, divorce, family illnesses, under withholding (not taking sufficient taxes out of monthly paychecks) and failing to pay sufficient quarterly estimated taxes are among the reasons given by those who owe back taxes. Other Americans simply don’t file a tax return, or owe large amounts due to an IRS audit, while a few deliberately underreport their income in hopes of avoiding higher tax payments.
If you fall into any of the above categories and the IRS believes you are past due on paying your taxes, you could be subject to:
Tax Penalties. When you fail to meet the IRS payment schedule, penalties could be tacked on to your total tax bill.
Tax Liens. This gives the IRS priority in claiming your assets over other creditors.
Tax Levy. This allows the government to seize your property (including your car, your paycheck, your bank accounts and more) in order to cover your tax debt.
If this is your situation, you should seriously consider hiring an experienced tax relief attorney who can help you understand IRS rules and recommend a strategy to help you reduce your tax obligations. Each tax debt situation is different, but here are a few types of tax relief that an attorney might recommend:
- Take Out a Loan. Sometimes taking out a personal loan will be better for you than the IRS payment plan.
- Repayment Plan. Create a plan that allows you to pay the full balance back to the IRS but over a longer period of time than the IRS plan. This keeps the monthly payments smaller.
- Offer in Compromise. Under certain circumstances, your attorney might be able to talk to the IRS about a plan that waives some of the back taxes.
- File for Bankruptcy Protection. Certain types of bankruptcy may work to your advantage, but the bankruptcy process is complex and can end in unintended consequences, such as the sale of many of your assets. In almost all instances, an attorney should be contacted before filing for bankruptcy.
There are many options to consider when trying to reduce tax debt, as a lawyer, like a tax relief attorney in Hartford, CT, at a firm like The Law Offices of Ronald I. Chorches, can explain.