There is an old expression that says there are only two sure things in life: death and taxes. When you owe back taxes, this is a very bad situation for you as the Internal Revenue Service (IRS) has tremendous power to essentially make your financial life miserable. The back taxes that you owe are going to do damage to your credit and the IRS may use aggressive collection techniques to try to recover the money that is owed to them.
Of course, the IRS is not the only one who you can owe taxes to. You could be in trouble if you don’t pay your local taxes, if you have unpaid business and payroll taxes, or if you fail to pay the property taxes on your home. In any of these situations as well, you can expect aggressive collection, damage to your credit and a host of other issues.
Interest, fees and penalties can add up extremely quickly when you owe any kind of back taxes, and you could find yourself owing much more than your original balance started out as. You could also find that your wages end up being garnished, that liens end up being put on your property or even that your home is seized and sold for nonpayment of property taxes.
You do not want any of these outcomes to happen to you, so it is always better to be proactive in advance and deal with your tax debt before the debt escalates to a disaster.
Tips for Getting Out of Your Tax Bind
Some of the different options that are available to you when you are behind on your taxes or when you owe money that you cannot pay include the following:
- Create a payment plan with the IRS or revenue collector, or try to work out a settlement for back taxes. When you owe money, the IRS or other tax collector is usually going to want to work with you to help make sure you can actually pay. Often, this means that it will be possible to get onto a reasonable payment plan where you pay off the tax debt over time. If you choose this option, though, be aware that interest and penalties can continue to accrue if the tax debt is not paid in full, so you could still end up paying far more than you should to take care of your taxes.
- Consider other sources of funding you can use to repay your taxes. The interest and fees charged on back tax debt and delinquent payments is usually going to be higher than for most other kinds of loans, so you may want to consider taking a different loan from another source, paying your taxes in full and then paying back the loan. Of course, you may not be able to do this very easily if you don’t have good credit. Fortunately, there are options out there like TitleMax that make it possible even for people who have bad credit to get a car title loan. Your credit won’t matter as long as you own your vehicle and you can get the money quickly so that you can pay the taxes that you owe.
- Talk to a bankruptcy lawyer. Some kinds of tax debt are not dischargeable, which means that even if you were to file for bankruptcy protection, you wouldn’t actually be able to solve your debt problems this way. Other kinds of tax debt, however, can be dealt with during bankruptcy, which can provide tremendous financial relief. You should be sure to speak with a reasonable legal professional to make sure that a bankruptcy actually would be the right choice for you before you decide that this is a good solution to your tax concerns. Here are some tips on finding the right lawyer for your situation.
Each of these different options could potentially help you to resolve tax issues. It is always best to pay your taxes as you go (this is usually done for you automatically when you have an employer) so you do not end up with a really big bill at the end of the tax year that you cannot pay. For taxes like property taxes which are typically collected just once annually, decide how much you need to set aside in your budget each month so the money will be there for you and you won’t be scrambling when the tax bill comes due.
Eric Chambers writes for various online publications on personal finances. He knows how to make money work for you, and offers plenty of advice to teach you how to do it. Follow him for some great money tips!