Taxpayers often believe they must wait a certain length of time before seeking help with their tax debts. This is like waiting for the engine to drop out of your car before you get an oil change. There is no set timeframe for seeking tax resolution. Get help as soon as you think you need it.
Why the rush, you ask? The longer you wait to make a move, the more time your debt has a chance to accrue interest. In other words, every minute you spend debating whether or not you need help is money out of your pocket. Tax debts are just like credit cards and any other debts you owe. You have to take action before they get out of hand.
If you are now overwhelmed with debt, set up a consultation with one of our tax resolution professionals, who will be happy to discuss your situation with you to determine whether you should pursue reduction efforts. Every case has a potential solution; you just have to find yours. Act now to ensure the best results.
Back taxes owed at the state level may include but not be limited to:
- Sales and use tax
- Withholding tax
- Unemployment tax
- Excise tax
- Property tax
- Workers compensation
- Income tax
Each state handles tax liabilities differently and has its own specific procedures and collection avenues. State taxing authorities often are more aggressive in tax collection and offer fewer options than the Internal Revenue Service for tax resolution. Contact one of our tax professionals now if you are having difficulty with your state taxing authority.
Hurricanes, tornadoes, fires, floods and other natural disasters are common during the summer months. Take a few simple steps to protect your tax and financial records in case a disaster strikes. Here are four tips to help you protect your important records.
- Backup Records Electronically. Keep an extra set of electronic records in a safe place away from where you store your originals. You can use an external hard drive, CD, or DVD to store the most important records. You can take these with you to keep your records safe. You may want to store items such as bank statements, tax returns and insurance policies.
- Document Valuables. Videotape or take pictures of the contents of your home or place of business. This may help you prove the value of your lost items for insurance claims and casualty loss deductions. Keep the pictures or videotape in a safe place away from where your valuables are stored.
- Update Emergency Plans. Review your emergency plans every year. You may need to update them as your personal or business situation changes.
- Get Copies of Tax Returns or Transcripts. Contact the taxing agencies to replace lost or destroyed tax returns.
The Internal Revenue Service recently announced that interest rates will remain the same for the calendar quarter beginning July 1, 2013 as in the prior quarter. Current rates, which will remain unchanged, are:
- three (3) percent for overpayments [two (2) percent in the case of a corporation];
- three (3) percent for underpayments;
- five (5) percent for large corporate underpayments; and
- one-half (0.5) percent for the portion of a corporate overpayment exceeding $10,000.
Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points.
Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.
The interest rates announced were computed from the federal short-term rate determined during April 2013 to take effect May 1, 2013, based on daily compounding.
If you have not stayed current in personal or business tax filings, or if you have an unpaid tax liability, remember that penalties add up quickly and interest continues to accrue! If you owe tax and don’t file on time, the total late-filing penalty is usually five percent of the tax owed for each month or part of a month that your return is late, up to five months. If your return is over 60 days late, the minimum penalty for late filing is the smaller of $135 or 100 percent of the tax owed.
When tax debt becomes overwhelming, it is normal to seek out an all-inclusive solution. For some people, that solution comes in the form of bankruptcy. Bankruptcy is a form of debt relief that essentially wipes the slate clean, giving you a fresh financial start. However, it comes with some serious consequences.
Before you commit to filing bankruptcy for your taxes, keep in mind that your credit will be affected for years. It will be difficult to get a loan for a car, a house, or anything else you may want, because banks will not trust your ability to repay them. In addition, filing for bankruptcy will prevent you from filing again for seven years. If you accrue additional tax debt in that time, you’ll have to pay it no matter what.
Most states require you to wait a certain length of time before including taxes in your bankruptcy. That time frame is typically three years. If you want to discharge tax debt from this past year, you’re going to have to wait a while. In the meantime, you will still have to make payments to the government to remain in good standing. Otherwise, you could face serious penalties.
Why go through the hassle when there are other solutions available to you? Find a tax resolution that works and pay off what you can. You will feel more accomplished this way, and you will be able to maintain your credit score. Bankruptcy should always be considered the last resort.
What determines your tax installment payment amount? Several factors come to mind. Since every person has a unique financial situation, their tax payment terms are also unique. Lucky for all of us, the government doesn’t require a flat monthly amount for its installment agreements. Here is a look at some of the determinants for installment payments.
- Current earnings: The more money you make, the more you will have to pay each month. At least, that’s the basic theory. If your current income is high and stable, you probably won’t get away with $20 monthly payments.
- Current debts: The IRS will consider your bills and other debts to see how much disposable income you could reasonably pay towards your taxes. In essence, they will calculate a debt to income ratio and go from there.
- Seasonal earnings: If you happen to earn more money during certain parts of the year than others, it factor into your overall payment plan. You won’t be required to pay more at that time. You’ll just have to pay more on average.
Talk to a tax professional about the installments you think you can afford, and he or she will work out the most reasonable plan for your current financial situation.