While some people look forward to tax time with the hope of getting back some money, others actually dread it because they fear they will not be able to pay back what is owed.
However, not filing your taxes on time, or not filing at all, due to a fear of tax debt can lead to some rather expensive penalties and accruing interest. First, the Internal Revenue Services charges 5 percent of what is on a return every month that the return is late. This percentage can end up topping out at 25 percent if the taxes are filed a year late. Then, on top of the penalty percentage, there is an interest percentage that is added on each month too.
Fortunately, there are a number of options that could be available to those taxpayers who are avoiding filing their taxes in fear that they will not be able to pay back what is owed.
The first thing to realize is that filing for a personal bankruptcy can really help. And while tax debt is not something that can typically be discharged in a bankruptcy, by filing for Chapter 13, you are able to reorganize your debts into a payment plan that you can handle. Additionally, with a Chapter 7, while there is not a payment plan, other debts can end up being discharged, which means you would have more money every month that could then go toward paying down your tax debt.
Outside of bankruptcy, other options also include setting up a payment plan with the IRS or even attempting to just settle debts through a one-time payment. But, keep in mind that what course of action a person takes is all dependent on their financial situation and eligibility.
Overall, finding yourself buried in tax debt can be stressful for anyone. However, it’s important to remember that options are available and that an attorney can help inform you of the different choices that could be available to help deal with that debt.
Source: KLJB, “Evaluate your income tax situation now,” Andrew Housset, March 9, 2012