Tax Debt
Let Technology Be Your Friend
Those of us old enough to remember the dawn of the computer age probably also remember lofty promises of artificial intelligence and automated everything. Some of those things have certainly come to pass, along with stuff most of us never even dared to dream – cell phones, internet, video games, video conferencing. That’s not even counting the specialized applications in medicine, manufacturing, exploration, and other endeavors.
However impressive the past few decades have been, technology has proven to be a poor substitute for human decision-making. Technology helps medical professionals diagnose, but the doctor determines the treatment. Technology allows us to immerse ourselves in fictional worlds blowing stuff up and claiming treasure, but teams of humans make those stories engaging and the characters memorable.
Dealing with Debt Will Never Be the Same Again
Financial technology can work similar wonders. Imagine having your IRS debt along with the rest of your balances available with a few clicks or swipes. Imagine immediate alerts when there are unexpected changes to any of your accounts, and reminders when payments are coming due soon. Imagine the ability to check balances across multiple accounts, move money, compare interest rates, or analyze payment or investment options as easily as you check social media.
Technology won’t tell you want to do. What it can do, however, is pull together a wider range of information and in a more useful variety of formats than possible ever before. What it can do is make it much easier for you to manage and utilize your resources. What it can do is integrate your efforts to resolve tax debt with the rest of your financial world – like a fitness tracker for your wallet.
We have a few surprises coming soon on that front. You should check back here and find out what that can mean for you.
“Debt is normal. Be weird.” — Dave Ramsey
As Benjamin Franklin famously pointed out over two centuries ago, the only two things which are truly certain in life are death and taxes. It’s not always easy to know which one we dread more. It seems ironic that as our lifespans increase, our propensity towards debt rises even faster. Mortgages, vehicles, credit cards, student loans, medical bills – and yes, tax debt. Perhaps by the end of the century the only two certainties remaining will be debt and taxes.
It’s hard to say whether or not that’s an improvement.
There are still important discussions to be had in this country about our tax code – who it helps, who it doesn’t, how it’s enforced, and how our collective tax dollars are spent. None of these questions, however, change the fact that we’re currently responsible for whatever the IRS and our particular states and counties say we owe. We can debate the system, but in the meantime we’d best do everything we can to stay current on our payments.
The Slippery Slope Into Tax Debt
There are many ways to end up tax trouble – most of them completely avoidable. One of the most common is simply not paying attention to how much we have withheld from each paycheck. If you normally get a substantial refund at tax time, you’re probably having too much withheld. If you usually have to pay, you’re not withholding enough. This is an easy fix with your employer, and potentially saves time and stress as well as money.
If you’re in business for yourself, or you do regular contract labor or freelancing, you don’t have the luxury of an employer taking taxes out of your paycheck before you see it. The I.R.S. has specific guidelines for figuring out if you should be paying estimated taxes quarterly, but a good rule of thumb is that if you’re likely to owe $1,000 or more when tax time comes around, you should probably be paying quarterly.
Either way, you should account for your tax obligations out of any income you receive that doesn’t have deductions taken out ahead of time. Setting aside 25% - 33% of your income for taxes certainly isn’t any fun, but neither is owing that much plus penalties and interest for years afterwards or having your property seized because your tax debt spiraled out of control. Disciplining yourself to maintain accurate withholding, paying quarterly, and saving enough throughout the year just to give it all to the government can be discouraging, but it’s nothing compared to paying back taxes and digging your way out of IRS debt for however long it takes to get out of serious tax debt trouble.
+ What Happens When You Don’t Pay Off IRS Debt?
We don’t want to get too sidetracked here by horror stories and the punitive power of the government to enforce the tax code. Suffice it to say they have numerous tools at their disposal to motivate the average citizen to cooperate.
Keep in mind that no matter what arrangements you make with the IRS or state regarding your tax debt, interest and fees on every dollar you owe will continue to pile up until you’re paid in full. Filing for an extension? That’s great – but unless you include a check for 90% or more of your estimated taxes with the paperwork, interest will accrue on your tax debt during the delay. (It’s still better to file on time even if you can’t pay the full amount, or even if you can’t pay anything at all. The penalty for filing late is substantially more than the cost of filing on time but paying late.) Working out payment arrangements with the IRS? Good plan – but additional interest and fees will continue to add up over the terms of your agreement.
It’s better to work something out and pay the extra interest and fees than to ignore or otherwise avoid your obligations as a citizen (however we may feel about the details). It’s even better, however, to plan ahead so you can pay on time in the first place.
Unless you work out other arrangements, the IRS has the power to garnish your wages for back taxes with minimal effort on their part. They can easily place liens on your property, making it impossible to sell or refinance or otherwise use that source of wealth, and laying the groundwork for them to simply take it if nothing else works. In some cases, incarceration is possible, but this is generally reserved for major fraud or other situations in which the government wishes to make an example of someone who’s been especially naughty. Otherwise, from a financial standpoint, it doesn’t make much sense for the feds to lock you up and pay your room and board for the next ten years because you owe them money. They’d rather find some practical way to squeeze it out of your functioning, gainfully employed remains.
Complain about taxes all you like. Use whatever legal means at your disposal to lower or avoid them if you wish. Vote for whomever you believe best represents your interests regarding the various tax structures with which you must deal. In the meantime, however, pay your taxes. It may take him awhile, but Uncle Sam almost always catches up with you otherwise, and the consequences are simply too harsh to be worth it.
+ How to avoid Tax debt trouble?
As with so many things, the ideal solution starts with a practical, effective budget. We’ve covered this extensively elsewhere, but the basics bear repeating here. Detail your reliable income and your predictable expenses. Estimate the rest. Compare the columns to determine priorities and strategies for paying down debt, investing in a short-term emergency fund as well as long-term savings and investments, and deciding how much of what’s left is truly “disposable” for other things.
Whether you pay taxes quarterly or annually, they should be a part of every budget. The best way to reduce tax debt is to pay your taxes on time and avoid it in the first place.
If you end up needing help with IRs debt anyway, don’t put off dealing with it. Contact the IRS immediately and explain the situation. If you can pay part of your IRS debt, offer to do so. Ask for options like a payment plan or partial tax debt relief. There are situations in which you may be able to have your tax debt forgiven in part or in whole, but they’re fairly rare and generally reserved for extreme cases. If you think your circumstances might qualify, we have more information on the Taxry blogs or you can search the IRS website for details.
Far more common is a negotiated form of tax debt relief through paying back taxes over time according to a schedule approved by the IRS or your state tax commission. You’ll pay interest and some additional fees, but this solution is still far better than ignoring or otherwise attempting to avoid your tax debt. The terms vary with how much you owe, and payments can be made through automatic withdrawals from your checking or savings account, check or money order, debit or credit cards (there may be additional fees for using plastic), or through something called the Electronic Federal Tax Payment System (EFTPS) online or by phone.
+ Should I Seek Professional Help With IRS Debt Relief?
If you’re uncertain of your ability to handle your situation with the IRS or state tax commission effectively on your own, consider seeking professional assistance. Chances are good there’s a CPA or attorney in your area who specializes in this sort of thing and can help you negotiate acceptable terms for tax debt resolution. You’ll generally have to pay for professional help, of course, but if it saves you far more than it costs you, it could easily be worth it.
Self-proclaimed “tax relief companies,” on the other hand, should be approached with great caution if at all. There are certainly organizations out there providing effective tax debt help to individuals and small businesses, but there are far more promising miraculous results with your tax debt settlement and claiming substantial fees in exchange. These sorts of tax relief companies prey on desperate people the same way as those “payday loan” places next to the gas station or services promising to find your child enough college scholarships to attend several universities at once. Do your homework before you commit to anything, and don’t let bad circumstances become worse circumstances because you feel a bit overwhelmed.
You can weather this. There are solutions. Making everything worse, however, is not one of them.
Pay Off IRS Debt With A Tax Debt Consolidation Loan
If you believe you could handle your total debt and taxes if they were merely structured a bit differently and you had some breathing room, you might consider a tax debt consolidation loan. This is a personal loan much like any other consolidation loan. It’s unsecured, meaning that unlike with your current tax debt you’re not risking your home or other property if you have trouble making payments at some point down the road. Tax consolidation loans are generally repaid at a fixed interest rate over a specified number of months, meaning you’ll owe the same amount at the same time each month until paid in full.
Consolidation doesn’t make your debt go away. It can, however, make the same debt more manageable by streamlining the terms, simplifying repayment, and allowing you to deal with one lender instead of many. The specific terms will depend on your current income situation and credit score, but this is not your parents’ financial world. Local banks, credit unions, online lenders, and other alternative sources of financing are far more competitive than they were a generation ago. Online lenders, in particular, often specialize in situations like yours and offer surprisingly competitive rates with less paperwork and much shorter turnaround times. It’s not unusual to have the funds deposited directly into your account within 24 hours of beginning the process.
We’re proud of our track record successfully matching individuals and small businesses with the right financial professionals for their circumstances and goals. After that, it’s the lender’s job to win you over. Let’s not forget that whatever your tax debt or other circumstances, you’re the customer. You have options. Any given lender, on the other hand, only stays in business if they can satisfy you and offer you terms that help you meet your goals.
WELCOME TO GOALRY
We do many things here at Goalry. Education, insight, online tools, and a variety of other information are all part of what we call “unified finance.” It’s our belief that most of us are perfectly capable of taking more effective control of our personal or small business finances if given access to the right information, tools, connections, and opportunities. While different types of personal and small business finances require specialized information and have their own little quirks – real estate is different from refinancing which is distinct from financing a car with isn’t quite the same as investing for retirement – in the end, it’s all about understanding and managing our resources.
Money isn’t everything, but it impacts almost everything we do or care about in some way. Our goal is to simplify those processes and help normal folks (that’s you as much as anyone else) navigate those worlds effectively.
What that means in terms of efforts to reduce tax debt or get other tax debt help is that we’ve devoted an entire section – Taxry – to understanding and managing your personal and small business taxes. There are plenty of legal and practical ways to reduce tax debt before tax season arrives, but it doesn’t stop there. Part of adulting in the modern financial world is understanding the basics of how it all works. We can help you with that at Taxry, as well as right here at Debtry and across the Goalry family.
If you think a consolidation loan might be the right form of tax debt relief for your circumstances, we can help with that as well. We don’t loan money or negotiate details at Goalry, but we do maintain a curated database of reputable online lenders who specialize in various situations and types of lending and who have strong track records helping customers very much like you. If you decide consolidation is an option worth considering, we’ll gladly assist with making that connection for you.
Most importantly, however, we want to remind you that you are not your debt. You are not your credit score. You are not your finances. Those things matter, and they impact almost everything we do, and one way or the other you will have to deal with them.
But they are not who you are. Moving forward may not always be easy, but it doesn’t have to be as difficult as it sometimes seems. And you don’t have to do it alone.
How can we help?
