Saving Money
Taxes: Save Money, Solve Problems
Forgiven Debt
If you settled a debt with a creditor or collection agency for less than the amount
owed, you may think the problem is solved. But not so fast! In many cases, the creditor
or collector will be required to send you an IRS Form 1099-C reporting “Discharge
of Indebtedness Income.” In fact, it’s required that anytime debts exceeding $600
are forgiven (even if that amount included interest or fees) a 1099-C must be filed.
If the creditor reports this income you’ll be expected to pay taxes on it. That’s
true even if you didn’t receive a copy of that form yourself because you moved.
So what can you do? You may be able to get this tax liability wiped out if you are
considered “insolvent” by the IRS, meaning you owe more than you own. For more information,
consult a tax professional or read publication “Instructions for Form 1099-C” at
www.IRS.gov.
Having Problems Paying Taxes?
Owing the IRS money is no fun. The IRS can do things other creditors can’t do to
collect. Without going to court first, it can seize your property or place a lien
on it, garnish your wages, or take money from your bank account.
If you owe the IRS money, it’s a good idea to try to resolve the problem as quickly as you can. Here are several options: Request a Repayment Plan: If you aren’t currently
in a repayment plan, and you’ve filed all your Federal tax returns, you can propose
a repayment plan to the IRS. In fact, it’s fairly simple. You simply file Form 9645
and propose a reasonable repayment plan. You’ll pay a $43 filing fee and interest,
which is at a reasonable rate.
Put It On Plastic: We don’t recommend charging your taxes, but there are situations
where it makes sense, especially if it helps you avoid further penalties or IRS
problems. Go to www.officialpayments.com for information on how to charge your taxes.
You’ll pay a fee of 2.49% as well as the interest charged by your credit card issuer.
Settle the Debt: You may be able to get some of your tax debt wiped out through
an “offer in compromise.” This is an agreement between a taxpayer and the IRS that
resolves the taxpayer’s tax debt. The IRS has the authority to settle, or “compromise,”
federal tax liabilities by accepting less than full payment under certain circumstances.
While an offer in compromise is officially considered an option of last resort by
the IRS, many people who couldn’t otherwise get caught up have used this to successfully
put their overdue tax bills behind them.
According to the IRS, it may be willing to accept an offer in compromise if there
is:
• Doubt that the assessed tax is correct.
• Doubt that you could ever pay the full amount of tax owed.
• Extenuating circumstances such as the collection of the tax would create an economic
hardship or would be unfair and inequitable.
You don’t need a tax professional to prepare an Offer in Compromise, but it may
be helpful depending on your circumstances.
File Bankruptcy: Bankruptcy generally does not wipe out tax debts, and for most
people it is not their first choice. However, if you have older tax debt and you
simply cannot pay it, you may need to consider this option. Consult a bankruptcy
attorney for advice.
Get Help With Other Bills: Creating a workable budget and a repayment plan for your
other debts may free up enough money so that you can work out a payment plan to
get caught up on your taxes. Consolidated Credit Counseling Services Inc. will be
happy to review your budget with you.
Additional Resources:
The IRS website is www.IRS.gov.
Tax Secrets of Millionaires by former tax attorney Scott Estill.
Learn more at www.bizhelpcentral.com
Stand Up to the IRS by attorney Scott W. Daily (www.nolo.com)
