Are you losing sleep over unpaid taxes? You’re not alone. Every year, many taxpayers get in trouble because of back taxes.
If you don’t get this situation under control soon, you might get in trouble. Nobody wants to get into hot water with the IRS. However, now, put your worries aside because this guide is what you need. Our clear and informative article will simplify the complex tax world.
Let’s take back control of your money.
What is Back Taxes?
Back taxes is a term for taxes that weren’t completely paid when due. Various factors can lead to this situation.
Common reasons for falling behind on taxes:
- Financial hardship
- Incorrect filing
- Lack of tax knowledge
- Poor record-keeping
- Unreliable advisors
- Economic crises
- Unexpected tax bills
How to Get Rid of Back Taxes
There are different solutions for different circumstances. Learn your options. Then figure out which one is suitable for you. Before requesting anything, you should first understand whether you’re eligible for tax relief options. For further steps, it would be better to get help from an expert. Otherwise, the whole process may seem a bit complicated, and this may also increase your panic.
Pay Your Taxes
Pay your taxes directly to quickly resolve back taxes. If affordable, do so to avoid extra penalties and interest. You can pay via your IRS online account, phone, or their mobile app. Besides, borrowing money from a friend or family member is also an option, if possible.
Fresh Start Initiative
There are four main programs available to taxpayers through tax relief programs under the Fresh Start Initiative.
- Offer in Compromise: With this agreement, you may pay less than the total amount you owe.
- Installment Agreements: An IRS payment plan or installment agreement lets you pay tax debt over an extended period.
- Penalty Abatement: If you’re eligible, it relieves specific penalties.
- Currently Non-Collectible Status (CNC): It stops collection activities for people in financial hardship situations until their situation improves.
Borrow from your retirement fund, 401(K)
If your plan permits it, you can money borrow from your 401(K) to pay back taxes. You can borrow up to 50% of your account balance, but you can’t borrow more than $50,000. However, you should repay it in five years. This option usually involves minimal fees and the plan charges interest. Besides, it can impact your retirement savings and be treated as a taxable distribution if you don’t repay.
Bankruptcy as a Solution
Bankruptcy, in specific cases, can address tax debts.
Chapter 7 Bankruptcy: This liquidation bankruptcy can discharge certain tax debts. To qualify, the tax debt must be due for over three years, filed at least two years before bankruptcy, and assessed by the IRS at least 240 days before filing. However, if the IRS has placed a lien on your property, Chapter 7 won’t eliminate the debt.
Chapter 13 Bankruptcy: Frequently referred to as a reorganization bankruptcy, Chapter 13 involves restructuring debts into a payment plan, lasting three to five years. It’s suitable if you don’t qualify for Chapter 7. If a tax debt meets the 3/2/240 criteria, it may be reduced and included in the plan. However, other tax debts still need to be paid in full.
Impact and Consequences: Both types can offer tax debt relief. However, you should be aware of its impact on credit and financial standing. For example, it impacts your credit score negatively. Besides, not all tax debts are dischargeable.
Qualifications: Assessing your financial situation is key to determining eligibility. The consequences extend to credit availability and credit score, and bankruptcy remains on credit reports for years.
Bankruptcy should be a last option, after other tax relief methods don’t work. Consulting a financial advisor is recommended to understand the full impact and suitability for your situation.
Get Help From a Tax Lawyer for Your Back Taxes
For the most stress-free and fast financial solution, you can get help from a tax expert.
Ready to take control of your back taxes? Let’s start with a free, no-obligation consultation to explore your best options. Take the first step towards financial freedom today.