Roughly a sixth of the tax money the government has the right to collect goes unpaid. Both individuals and corporations carry a significant amount of tax debt. Tax debt can cause massive amounts of stress for debtors, especially with numerous half-truths and untruths floating around about the topic.
Today, we'll look at some of the most common tax debt myths. If you're in debt, shouldn't you know your rights? We'll do our best to clear the air.
One of the most persistent myths about taxation revolves around imprisonment. Many citizens think they can go to jail for owing the IRS money.
The IRS does not send people to jail for tax debt. Tax crimes have to do with concealing money from the IRS or making fraudulent declarations. Even if you owe a lot of tax debt, owing money to the IRS will not land you in a correctional facility.
If you've accumulated a lot of debt to the IRS, you will generally be better off if you reach out to them, either personally or with the aid of a tax professional.
Contacting the IRS will not lead to a prison sentence. Beginning the tax resolution process will enable you to take control of your finances and your life.
If you have little income and other heavy debts, you might not need to pay the IRS the exact amount you owe. The idea of tax debt as immutable holds no weight.
If you have debt from taxes that you cannot repay without endangering your financial situation, consider an offer in compromise. If the IRS agrees that it is unreasonable to expect you to pay the full debt, and does not expect to collect it in a timely manner, it will accept a smaller offer.
You must pay 20 percent of your offer when you submit the application, and the IRS doesn't have to accept your offer. Depending on your circumstances, this could leave you in a worse position than before, so consider discussing your options with a tax professional first. Still, if you can't pay some taxes you owe, this could be a reasonable solution.
The IRS does not repossess your property. Instead, if you owe more than a certain amount, it places a lien on your property.
A lien notifies creditors that the government has the first claim to a certain amount of money tied up in your property. For instance, if you have $45,000 in IRS debt, they might choose to place a lien on your property in that amount. If you were to sell your home or vehicle, the IRS would get to claim its share before anyone else.
In some cases, even if you have a lien on your home, you can get the IRS to allow other creditors to receive the money before the IRS does. Depending on circumstances, the IRS can also remove the lien early. You will still owe the IRS money, but the lien will not be used against you.
Bankruptcy can discharge some, though not all, forms of IRS tax debt. These include taxes on gross receipts as well as income taxes.
The debt must have been incurred at least three years prior to the bankruptcy. All necessary tax paperwork must have been filed at least two years prior to the bankruptcy.
While bankruptcy won't discharge brand new tax debt, if you've struggled with tax debt for many years and have no other options, you can get rid of it during bankruptcy. As bankruptcy comes with other costs and requirements, however, consider whether it offers the best route out of debt before filing.
The IRS does not call first in most circumstances. It will try other avenues of communication, especially mail, before moving to phones. Even when it does contact you by phone, the IRS will not request money immediately, issue threats, or instruct you to pay a third party.
Scammers use these tactics to defraud people who owe the IRS money. The IRS takes several steps to make a legitimate contact clear, including providing multiple ways to verify that the caller works for the IRS. Don't let yourself lose money to a fake collection.
This serves as a counterpoint to the previous myth. While the IRS only rarely works with private debt collection agencies, it does partner with a few of them for certain debts.
This process, however, has several steps prior to the collection to limit the opportunity for fraud. The IRS will first send a letter informing you of the partnership with the collection agency. The collection agency then follows up with a letter of its own.
As of now, the IRS has three private partners. The IRS makes up-to-date information on its private partners available on its website.
Tax debt can be a heavy burden, and with a lot of contradictory information out there, you may not know what options you have. Sorting tax debt myths from tax debt reality can take time and effort.
We want to help. If you can't pay taxes, or you have a lien on your property, reach out to us about your situation. We'll figure out whether we can help, and if we can, we'll get in contact with you to get the process started.
Let's talk about how we can help. Schedule an appointment today with one of our financial experts and start your journey towards financial clarity and success.