Do you owe a lot of back taxes? Nervous that the IRS or the state is going to take all your money and leave you with nothing for expenses like food, housing, cars, insurance, etc.?
Tax resolution or tax debt settlement can be confusing topics that often seem overwhelming to the person with an overdue tax debt. However, the first thing I want to tell everyone is – that no matter what part of the process you are in, are you hiding under a rock from the IRS and/or the state or have you recently defaulted on your taxes or have you just want to get rid of this burden. your shoulders – relax.
So relax… Did you know that the IRS and/or the state cannot take more money than you can pay? What is the definition of what you can afford? Each tax authority defines this slightly differently, but the general principles are the same for the IRS and all states. You must be able to afford housing, food, medicine, cars, insurance, etc. These costs are classified as your “Allowable Living Expenses”.
Your income minus your allowable living expenses gives you the amount of money the IRS and/or the state can claim – otherwise known as disposable income. Your goal is to reduce your disposable income to the lowest amount possible, reducing the amount you have to pay back. If you have no disposable income, the IRS and/or the state cannot collect anything from your income. The key is – let them know you have no disposable income. Do this by filling out the appropriate forms and using the IRS and/or state amortization calculations.
While how much you owe plays a role in how much you have to pay back, it plays a smaller role than what you can afford to pay back. The United States has laws and you have rights that protect you from paying back more back taxes than you can pay. Again, minimize your disposable income and minimize your principal.
The IRS or the state can also force you to liquidate assets. Typically, they don’t require you to sell the family home or car, but if you own other types of assets (non-owner property, boats, RVs, etc.), the IRS will want the equity on these items . If you can prove to the IRS that these assets have no equity, you need those assets for your work, or you are able to make monthly payments for your tax bill so that you can pay your balance in full within the time frame you is assigned , you may often keep that asset.