Understanding Tax Debt

A tax debt is any amount owed to federal and state tax authorities for income taxes, payroll taxes, property taxes, sales and excise taxes. In addition to the actual amounts owed, there are additional fees and penalties charged by the IRS for late payment and other reasons. The IRS has various tools to collect outstanding tax debt, including garnishing wages and placing liens on property. That is why it is important to have a good understanding of tax debt.

In general, the IRS wants to collect all of the taxes it is owed in an efficient and timely manner while encouraging voluntary compliance and promoting reasonable fairness and consistency. To that end, the IRS has historically been willing to negotiate with delinquent taxpayers and settle or reduce tax debt where it is in the interest of both parties.

The IRS has many programs to help individuals and businesses manage, reduce or eliminate their outstanding tax debt, including installment agreements, the Fresh Start program and specific penalty abatement options such as reasonable cause and fraud abatement. In order to qualify for these and other tax relief options, taxpayers must meet certain criteria – including meeting filing and payment requirements, not being in open bankruptcy proceedings and not having unresolved criminal matters, such as tax evasion or identity theft.

For people who owe back taxes, the best solution is to pay as much as possible by the filing deadline. This will minimize the amount of interest and penalties incurred. However, for people who are living with significant financial challenges, it may be more realistic to file for an offer in compromise. This process allows taxpayers to submit a proposal to the IRS that will settle their tax debt for less than they owe in exchange for an agreement not to collect the remaining balance.

The before-tax cost of debt is calculated by adding annual interest and fees to the total debt amount and dividing by the total debt amount. The result is expressed as a percentage, and Stealth Agents provides an easy-to-use calculator for this calculation.

Taxes are not fun, but they are necessary to maintain a functioning society. The IRS is a powerful institution, but it is also well-meaning and understands the impact of collecting debt on ordinary citizens. It is important for Americans to understand their options for reducing and eliminating tax debt, so they can avoid the stress of dealing with an overdue bill.

If you are in over your head with taxes, consider working with a Tax Professional. These experts are knowledgeable about all IRS collections policies and can negotiate your debt with the IRS on your behalf. They can also prevent you from becoming an IRS target and help you avoid common tax scams. Contact a Tax Pro today to get started. They can assess your financial situation, recommend the right approach, and help you resolve your tax debt in the most effective way possible.