Tax season is hardly (if ever) lauded for being one of the best times of the year. Not once in our decades of existence, have any of the staff here at Accounting Solutions Ltd. borne witness to any of our clients shunning Christmas or Spring time in lieu of the numerical intricacies and extensive record checking that tax season brings. Unless you are a CPA, who are constantly preparing for this time of the year, chances are you would rather not think about it altogether.
Given the somewhat repellent properties of the subject matter, we do occasionally notice that our clients avoid asking many questions about tax season as a whole. One topic that is consistently sidestepped revolves around debt. This makes sense – while everyone aims to pay off any overdue money, not everyone is able to make ends meet quite so simply, and some are more comfortable not discussing what tax debt is, or where it comes from. Whether or not you owe money, we do wholeheartedly believe that it is our job as CPAs to educate the people of Chicago, and thus we have constructed the following introduction to tax debt, read on:
One Thing That Is Always Misinterpreted:
The most common misconception that we have seen among taxpayers in relation to settling debts with the IRS revolves around how settlement agreements are actually reached in the first place. Many people have the idea that their settlement plans are based entirely around how much is owed in the first place, regardless of income and any other extraneous factors. In reality, the payment sizes are centered around the ability of the taxpayer to pay themselves. There is a relatively simple calculation at play here – allowable living expenses are subtracted from the average monthly income in order to determine disposable income. This ‘disposable’ source of wealth is what the IRS will request to clear up the debt. Put simply, they will request the money that they deem as being eligible for your savings, rather than immediate essential use.
How Long Do The IRS Try To Collect?:
Collecting debt from taxpayers is one of the key functions of the IRS, and they are very thorough and efficient in terms of time-scaling as a result. The basic statute of limitations for collections indicates a time period of ten years. This can change in the event of filing for bankruptcy, which can extend the statute significantly.
Which Taxes Are Dischargeable:
In certain situations, debt can be amended without paying. One specific example arises from a Chapter 7 bankruptcy filing. In this situation, taxes that are owed as a result from returns that were filed on time and at least three years in the past are essentially dischargeable. If the return was filed more than three years ago, a duration of two more years must pass before these debts can be included in your filing. Should the IRS choose to audit you, you must wait two hundred and forty days before you can include that audit assessment in your filing reports.
Offers In Compromise:
Often abbreviated to OIC, an Offer In Compromise is a contract between debtors and the IRS that helps settle the debt for much less than what is actually owed in the first place. In most cases, the debtor must provide an offering that is comprised of a certain amount of disposable income paid over time as well as an additional amount that is pulled from equity in personal assets, such as vehicles, properties etc. OIC’s generally span a time range of twelve to twenty four months. The plans themselves can vary, but one of the most common is a twelve month plan where the payee offers to provide twenty percent of the offer amount at the same time as filing the offer, and will then pay the rest in five monthly instalments. With such an arrangement, the IRS will also provide a agreement clause wherein the payee must file and pay their taxes on time for the next five years.
An alternative to an OIC is called an Installment Agreement. While OIC’s are put into place when the taxpayer owes a significant amount of funds that it is unlikely they will be able to afford to settle, while a Installment Agreement allows the payee to negotiate affordable monthly payments while they wait for the initial statute essentially stagnate and expire.
Tax season is generally not regarded as being the jolliest time of the year, and a lot of that does have to do with the fact that many taxpayers owe money to the IRS. While this is simply the reality of any capital-based system, we here at Accounting Solutions Ltd consider it our responsibility to ensure that the general public is well versed in what tax debt looks like, and how steps can be taken to get out of it. If you are concerned about your current financial situation, or simply want to make sure everything is in order before you file for your return, then do not hesitate to reach out to us, our talented team of CPAs are just a phone call away.