April 17, 2024 The Newspaper Serving LGBT Los Angeles

What are the consequences of tax debt?

Your balance will accumulate interest.

The IRS will charge you interest on top of your tax bill. The interest rate rises as the balance rises. The current rate is 5% every year. When the IRS grants a decrease in interest, the IRS can waive the amount due entirely, or they can remove particular periods from the interest computation.

It is difficult, but not impossible, to obtain IRS interest abatement. If you believe the amount of interest you have been assessed is incorrect or you cannot pay it, don’t hesitate to contact one of our qualified tax professionals.

 

Consulting your situation with an attorney

 

Tax regulations are complex, and an exception or exception may keep you from having to pay taxes on canceled debt. If you are unsure if your forgiven debt is taxable, consult a tax attorney to ensure that something is arranged. In most cases, it pays off for people with tax debt to consult a professional since tax laws can be heavy in documentation, and people often overlook specific qualifications. One disadvantage of filing a dispute with the IRS is that they can use the documentation and information you supplied to resolve the debt repayment process more quickly.

How much do I have to pay?

Most earnings are taxed at your typical tax rate, which for 2021 ranges from 10 percent to 37 percent, dependent on your taxable income. The United States has a progressive tax rate, meaning the tax percentage rises as the taxable base rises.

The IRS will charge penalties in case of late payment.

In addition to interest, the IRS imposes a failure to pay a penalty of 0.5% each month on your unpaid tax total. If the IRS has given you many collection notifications and you have not established payment arrangements, the monthly penalty rate rises to 1%. But there is some good news. Once you get into a periodic payment plan with the IRS, the penalty rate reduces to 0.25% each month, but it might go higher depending on how long you delay your payments.

What happens to my house if I am in debt?

The IRS may foreclose on a residence if it has a federal tax lien. But it is unlikely they’ll do it. The IRS would contemplate foreclosure only if your house has adequate equity to pay off any superior liens, such as a previously recorded mortgage and the IRS obligation. Even yet, the IRS seldom kicks homeowners out of their principal dwelling. The media portrays this activity negatively, and many movies often sketch the wrong image of foreclosure with tax debt. Typically, the IRS will keep the lien on the property until you sell or refinance it.

There are other options.

The IRS has a unique program for individuals who are unable to pay their debt to the IRS. Taxpayers who qualify for the program are willing to pay their tax obligation in installments over a defined period and according to a repayment schedule. In addition, if you are an individual taxpayer ready to return your commitments in a series of payments using a direct payment system, you may be eligible for the IRS Fresh Start Program. This arrangement allows qualifying persons to pay their taxes in smaller, more manageable installments over time, with reduced penalties on tax due. The IRS will examine your capacity to pay based on income, expenses, and equity. If you’re looking to qualify for the program, you should fit these requirements:

– You owe less than $50,000 or more than $50,000; however, you can lower your debts to this level before beginning the program.

 – You may pay off your outstanding debt in less than 60 months.

 – Your tax return has been filed and is up to date.

 – This is the first time you’ve fallen behind on your IRS payments.

 – You will get into a direct payment installment agreement.

 – You will keep the payment arrangement, stay up with tax filings, and will not incur further tax obligations while paying your installments.

 – You will apply for an offer in compromise and have 12 months to pay down the agreed-upon Fresh Start Initiative settlement amount.

If you are unsure whether you qualify, you can contact us for free and get a tax consultation to help with your debt with the IRS.

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