Bankruptcy Is One Way for Chicago Taxpayers to Lower IRS Debt
Layoffs and income reductions might mean more Atanta taxpayers are getting money back this tax season, but not all of us are so lucky.
So what can you do if your already tight budget now includes a tax payment to Uncle Sam? Get help. Whatever you do, don't avoid filing. Not only do IRS penalties add up more quickly than most other debts, but they can lead to garnished wages or even jail.
Fortunately, the government can be a lot more understanding than most creditors - if you follow their rules, that is. That means being open with the IRS if your financial situation is making it tough to impossible to pay off tax debt. File your taxes, even if you can't afford to pay them, and you might have a shot at the following alternatives.
If you can prove you have a financial hardship, you can apply for an extension to pay. Of course, this is a temporary solution - you'll be given just 120 days to come up with the cash needed to pay your tax bill - but if you trust you'll find the funds, this will buy you some time to do so.
Don't think a few months will cut it? You might be able to qualify for an installment agreement. If approved, you'll pay as much as you can afford upfront, then make smaller monthly payments on your debt for somewhere between four months and less than five years. However, it will cost you more in the long run - for all that extra time, you'll have to pay an upfront fee, a late payment fee and interest on your debt.
Sometimes the most effective way to pay down your debt doesn't come courtesy of the IRS - it comes with bankruptcy. Bankruptcy can work in a couple different ways. First, it can completely discharge debts more than three years old - either by liquidating some of your assets under Chapter 7 or providing an affordable payment plan for your debt under Chapter 13. Of course, that doesn't do much good if you're trying to pay this year's tax bill. But you can still benefit from bankruptcy's ability to eliminate other debts - like credit card or medical debts, for instance. With less bills to pay, you'll have more leftover for the IRS - and life in general.