Tax Debt: Reduce & Eliminate Tax Debt Before It’s Too Late

It's up to you to eliminate and reduce your tax debt!

Tax debt hanging over your head is extremely stressful for anyone. You need to eliminate tax debt or at the very least reduce it! Many people don’t realize, however, that if they fail to pay their taxes in a timely fashion they are increasing their debt substantially as time passes. This is because the IRS is very strict about when you pay your taxes and penalizes late payment or late filing of income tax returns in several ways.

Interest on Your Tax Debt Adds Up

Just like having a loan, if you have money that the IRS considers “theirs” you will have to pay interest on the money for every day that you have kept it past the due date of your taxes. This interest fluctuates with standard interest rates, but is usually around 6% per year. If you owe several thousand dollars in taxes, this means that you can end up hundreds more in interest at the end of the year.

For this reason, you should try and eliminate tax debt as soon as possible – it reduces the interest that you owe. You can nothing by putting off the inevitable, and you are only increasing your tax debt as the months tick by.

Late Payment Penalties Have an Impact

The IRS doesn’t like it when people pay their taxes late, so they not only charge you interest on what is owed, but slap you with a penalty fee for being late. It’s rather like the late fee you’re charged on a rental, but much more substantial. It is about 0.5% of the amount of taxes you owe every month until it is paid in full. Again, this can add up quickly to increase your tax debt so it’s a good idea to eliminate tax debt before you get in this situation.

Late Filing Penalties are Substantial

This particular penalty only applies if you tried to bury your head in the sand by not filing your tax return. Many people are so worried that they can’t pay their taxes that they don’t file them at all, hoping to put off the inevitable. Unfortunately, they don’t realize that this costs them in the long run because there is an additional late filing penalty of 5% for every month the tax return is late up to a maximum of 25%. That’s a considerable penalty!

Don't let the taxman rain on your parade. Eliminate liabilities with careful planning.If you are worried that you can’t pay your taxes, it is better to file them anyway so that you immediately eliminate the chance of the late filing penalty. You will still have some tax debt, but it will be more manageable and the IRS will be more open to negotiating a payment plan, offer in compromise or other solution to pay off the taxes owed. The IRS is most likely going to work with you to help you reduce and eliminate your debt before it gets out of control.

Tax debt is always stressful, but by making an honest effort and paying as soon as you can you will reduce the amount of additional debt from interest and penalties. Talking to an income tax expert can help you find the best way to handle your situation.

 

 

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