Bills. com Offers Tips to Handle Taxes That Can't be Paid
Options remain for those unable to pay 2006 taxes, Bills. com CEO suggests
San Mateo, Calif. (PRWEB) April 18, 2007
As morning dawns on the day after federal tax returns became due, many filers have discovered they owe more taxes than they can pay. Options do exist for these consumers and business, according to Brad Stroh, co-CEO of Bills. com (www. bills. com).
Stroh noted that Americans, carrying more debt than ever, are more likely to have tax problems than in the past. In 2005, the IRS recorded nearly 6 million delinquent accounts. The number of levies (a key enforcement tool in which the IRS takes possession of assets to collect on unpaid taxes) was 2.75 million during fiscal year 2005 - a 37 percent increase from 2004 and part of a trend that increases the number every year.
First step: File a return
"Hopefully, everyone has filed their tax return," Stroh said. "Not filing at all is the single biggest mistake people can make in terms of staying in the good graces of the IRS."
Not filing a return at all can carry penalties and even result in criminal prosecution by the IRS. In addition, those who qualify for a refund can lose their refund by filing late. On the other hand, sometimes those who file but cannot pay the full amount they owe can qualify for a payment plan. Unpaid amounts due will be charged interest, usually a rate of 4.5 percent per month.
How to handle current tax problems
For individuals with reasonable cause to be unable to pay, the IRS might choose to minimize or eliminate penalties, Stroh explained. "You absolutely must face the situation and discuss your options with the IRS or an advisor."
It also is possible to negotiate with the IRS to reduce past-due tax penalties and payments. Taxpayers with tax debts under $10,000 usually can manage the payment on their own or via an installment plan arranged with the IRS. When individuals cannot pay tax liabilities of $10,000 or more, specialists can negotiate directly with the IRS on behalf of these consumers, helping them obtain settlements.
Tax relief specialists usually are attorneys, enrolled agents or certified public accountants with special training and experience. These experts can navigate the intricacies of IRS forms and calculations, help consumers understand the criteria the IRS imposes, and then help them get back into good standing with the IRS.
Depending on the severity of an individual's situation, two types of IRS settlement are available:
An offer in com¬promise reduces the principal, interest and penalties owed to the IRS. An installment agreement is a payment plan for the amount due and often includes reduced penalties.
"Do not let overdue taxes languish," Stroh warned. "The IRS is serious -- and increasingly aggressive -- about tax collection and evasion. Tax debt can result in a lien on a house or garnished wages."
How to avoid future tax problems
Many more Americans face unexpected tax burdens that require a budget crunch to pay the 2006 tax bill. Consumers with this situation can take one or more of the following actions to change their situations for next year:
1. Change withholding options. Talk with a tax advisor about the possibility of completing a new W-4 with a minimum number of exemptions. Each exemption reduces the tax withheld on the assumption that the difference will come out of a tax refund. The small decrease in each paycheck will help next year's tax bill.
2. Maximize deductions. Carefully consult with a tax advisor to obtain all qualified tax deductions. Contribute to tax-benefited savings plans (like some individual retirement accounts [IRAs], 401(k) plans and 529 college savings plans). Keep receipts for items like medical expenses and charitable donations. Participate in benefits that allow pre-tax income to pay for certain items, like health care and child care.
3. Move debt loads. "For debt that must be incurred, make as much of it as possible deductible via vehicles such as home and education loans," Stroh suggested. "For instance, take a federal student loan rather than paying tuition on a credit card. If you have sufficient equity and stable financial situation, ask a tax advisor about consolidating debt with a home equity line of credit -- the interest may be tax deductible."
While facing tax debt can be painful, current bankruptcy laws make it even more crucial for consumers to act. "Historically, consumers in severe IRS debt might file for Chapter 7 bankruptcy protection or wait for the 10-year statute of limitations on tax liability to expire," Stroh said. "Now, the bankruptcy 'means test' leads many consumers instead to file Chapter 13 bankruptcy, which establishes a repayment plan, rather than wiping out all debt.
"Whatever steps you take, tax season means it's time to face the inevitable and manage your tax burdens," Stroh added. "Fortunately, options -- and experts -- are available to help along the way."
Based in San Mateo, Calif., Bills. com is a free one-stop online portal where consumers can educate themselves about complex personal finance issues and save money by choosing products and services including credit cards, debt relief assistance, insurance, mortgages and other loans. Since 2002, Bills. com and its partner company, Freedom Financial Network, have served more than 15,000 customers nationwide while managing more than $350 million in consumer debt. The company offers tax debt resolution assistance at https://www. bills. com/debthhelp/tax_debt/ (https://www. bills. com/debthhelp/tax_debt/). The company's co-founders and CEOs, Andrew Housser and Brad Stroh, were named Northern California finalists in Ernst & Young's 2006 Entrepreneur of the Year Awards.
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