The best course of action to take sometimes isn't clear until you've listed and considered your alternatives. The following paragraphs should help clue you in to what the experts think is significant.
Having tax debt to deal with is a nightmare for most of us and ads unnecessary stress to our lives. The issues seem complex and overwhelming. Not to worry though, the following steps will serve as an introduction to managing and dealing with tax debt, while the further posts will deal with the details.
Tax debt can be managed using the following steps:
1. Decide whether to handle it yourself or to hire a tax professional.
2. Check and re-check your original tax returns to see if you've overlooked any deductions that you are entitled to. It will be worth your while to amend your tax return so you can lower the amount you owe.
3. Choose the tax debt plan that suits you best with your current financial status.
Should you do it yourself?
If you owe the IRS less than $10 000, you can resolve your tax debts on your own. Five ways to get out of tax debt will be discussed later. You should choose the option that's best for your current financial situation.
You should consider hiring a tax professional if you owe the IRS between $10 000 and $25 000. You will need to make sure that your original tax returns are accurate, and that you'll be able to afford the payment plan you set up.
If you owe the IRS more than $25 000, you should be working very closely with an experienced and well qualified tax professional.
How do I find a tax professional?
So far, we've uncovered some interesting facts about tax debt. You may decide that the following information is even more interesting.
You need to ask them about their credentials. He or she has to be either a certified public accountant, enrolled agent, or tax attorney. These are the only professionals who are allowed to practice before the IRS. CPA's and attorneys are limited to practicing in those states where they are licensed, whereas enrolled agents can practice in any state.
You will need to keep your costs under control. Tax professionals either charge a flat fee for all services, or an hourly rate for services rendered. To minimize costs, your tax professional should focus more on strategies and negotiations with the IRS than with routine data entry and paperwork. To minimize your overall fee, you can ask your tax professional which paperwork and forms you can fill out yourself.
Filing late tax returns and amended tax returns
If you've not filed your tax return yet, you may be in a more advantaged position. This is because there may still be opportunity for you to take advantage of tax deductions you may not have been aware of, that you are legally entitled to, that will reduce your tax liability.
If you have already filed taxes, your tax professional should review those returns to determine if they are accurate and if you are entitled to any deductions you may have overlooked. There is, however, a substantial amount of paperwork and reprocessing involved in amending a return. Amended returns have to be thoroughly accurate with substantial supporting documentation, otherwise you risk an IRS audit. Normally, you will want your tax professional to retrieve a complete set of documentation from the IRS and compare that information to the tax documents you already have. After careful consideration and deliberation, your tax consultant will advise you on whether to file for an amendment.
Five tax debt strategies:
1. Installment agreement: a monthly payment plan for paying off the IRS.
2. Partial payment installment agreement: new debt management program where you have a long term payment plan to pay the IRS at a reduced dollar amount.
3. Offer in compromise: program where you can settle your tax debt for less than you owe. It requires that you make a lump sum or short term payment plan to pay off the IRS at a reduced dollar amount.
4. Not currently collectible: program where the IRS voluntarily agrees not to collect on the tax debt for about a year.
5. Filing bankruptcy: discharge your tax debts under the strict rules of a bankruptcy petition.
Those who only know one or two facts about tax debt can be confused by misleading information. The best way to help those who are misled is to gently correct them with the truths you're learning here.
You will need to keep your costs under control. Tax professionals either charge a flat fee for all services, or an hourly rate for services rendered. To minimize costs, your tax professional should focus more on strategies and negotiations with the IRS than with routine data entry and paperwork. To minimize your overall fee, you can ask your tax professional which paperwork and forms you can fill out yourself.
Filing late tax returns and amended tax returns
If you've not filed your tax return yet, you may be in a more advantaged position. This is because there may still be opportunity for you to take advantage of tax deductions you may not have been aware of, that you are legally entitled to, that will reduce your tax liability.
If you have already filed taxes, your tax professional should review those returns to determine if they are accurate and if you are entitled to any deductions you may have overlooked. There is, however, a substantial amount of paperwork and reprocessing involved in amending a return. Amended returns have to be thoroughly accurate with substantial supporting documentation, otherwise you risk an IRS audit. Normally, you will want your tax professional to retrieve a complete set of documentation from the IRS and compare that information to the tax documents you already have. After careful consideration and deliberation, your tax consultant will advise you on whether to file for an amendment.
Five tax debt strategies:
1. Installment agreement: a monthly payment plan for paying off the IRS.
2. Partial payment installment agreement: new debt management program where you have a long term payment plan to pay the IRS at a reduced dollar amount.
3. Offer in compromise: program where you can settle your tax debt for less than you owe. It requires that you make a lump sum or short term payment plan to pay off the IRS at a reduced dollar amount.
4. Not currently collectible: program where the IRS voluntarily agrees not to collect on the tax debt for about a year.
5. Filing bankruptcy: discharge your tax debts under the strict rules of a bankruptcy petition.
Those who only know one or two facts about tax debt can be confused by misleading information. The best way to help those who are misled is to gently correct them with the truths you're learning here.
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