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Considering Bankruptcy to Get Rid Of Your Back Taxes? 3 Alternatives to Explore Before You File

August 7, 2020

If you are drowning in debt and working harder and harder to make ends meet, you may think a bankruptcy filing is the only way out, but that is not necessarily the case. Filing for bankruptcy is one solution, but it is a drastic step that should only be taken as a last resort.

This is especially true if you owe back taxes to the IRS or state. Depending on what type of taxes you owe, you might not be able to wipe out your back taxes in bankruptcy proceedings.

It’s important to weigh all your options and get a clear picture of your financial situation, so in this article, we share with you 3 smart steps to take before declaring bankruptcy.

Depending on how much you owe, who your creditors are, and how the rest of your financial life looks, you may be able to dig yourself out of the hole and take back control without having to declare bankruptcy. Here are three smart alternatives to consider before calling a bankruptcy attorney.

3 Alternatives to Explore Before You File

  1. Contact A Tax Relief Firm

Most bankruptcy attorneys aren’t familiar with the complex tax laws so they won’t accurately be able to assess your tax situation.

A tax relief firm like ours can help you assess your back tax situation and often help you settle your back tax debt with the IRS. If you owe a substantial amount of back taxes, this may be a good way to reduce your overall debt burden. This can also be a good first step to getting back on track with your finances.

  1. Request a Lower Interest Rate On Other Debts

When you are paying 18% or more in interest, it can be hard to keep up with the charges, let alone make any headway on the outstanding balance. Credit card interest rates are among the highest around, and those outrageous rates have trapped many consumers in a spiral of ever increasing debt.

How different would your finances look if your interest rate was cut in half? Would you finally be able to get ahead of the interest charges and start paying down your balance? If so, it is time to get your credit card issuer on the line.

Even if you do not think your credit card issuer will be receptive, it never hurts to ask. And when the credit card company finds out that you are thinking about filing bankruptcy, they may be more willing to negotiate than you think.

For tax debt, the IRS can sometimes remove penalties and interest from your tax debt, so it’s important to reach out to our firm to see what your options may be.

  1. Refinance Your Debt

Even if your credit card issuers and lenders are not willing to budge on the interest rates, you could still save money and avoid bankruptcy. Refinancing your existing debt through a home equity line of credit, a personal loan or other means could lower your interest rate substantially and slash your monthly payments.

If you do decide on this strategy, it pays to shop around. The more you can lower your interest rate, the more money you can save – and the faster you will be able to pay off your debts.

But it’s incredibly hard to refinance your debts if you have an IRS tax lien or wage levy. Our firm can get these released and help you get on financial track.

A bankruptcy filing can provide a fresh start for those in dire financial circumstances, helping them recover and rebuild their shattered monetary lives.

Even so, bankruptcy is not the only way out, and it is important for those considering this solution to research the alternatives first. The three bankruptcy alternatives listed above can also give you the fresh start you need, without the stigma or long-lasting impacts of a bankruptcy filing.

IMPORTANT: We highly recommend readers to reach out to our firm first. Our clients never have to talk to the IRS, and tax resolution through our firm can save you money and time in the long run. You might also be eligible for other relief programs or get your penalties and interest forgiven. Reach out to our firm today for a consultation.

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August 7, 2020Categories: back taxes, Bankruptcy, filing taxes, tax notices

Bankruptcy FAQ for Individuals

Filing for bankruptcy is a difficult and draining process. People often feel ashamed, scared, or confused. If you find yourself with no other options, bankruptcy can be a good way to clear out old debts, change financial patterns, and most importantly get a fresh start. Here is everything you need to know about filing for bankruptcy.

Note: Depending on what type of taxes you owe, you might not be able to wipe out your back taxes in bankruptcy proceedings. Our firm specializes in tax resolution and back tax debt settlements with the IRS. So if you’re considering bankruptcy in part because of your back tax burdens, reach out to us today for more information on how you can get tax relief.

Who Should File for Bankruptcy?

If you owe money to a creditor and cannot repay it, you can file for bankruptcy. Businesses and individuals are eligible; however there are caveats. If you have filed for bankruptcy once before, there is a waiting period before you may file again. After filing for Chapter 7 bankruptcy, you cannot claim bankruptcy again for eight years. After filing for Chapter 13 bankruptcy, you must delay a second claim for at least two years.

What Types of Debt Can I Discharge Through Bankruptcy?

You can discharge most types of debt through bankruptcy, including medical debt, credit card debt, payday loans, and mortgage debt.

Certain types of debt cannot be discharged through bankruptcy, meaning that you will still need to repay these debts even if everything else is forgiven. Debts that cannot be wiped out in bankruptcy include spousal support, child support, student loans, and back taxes in most cases.

Any debt you take on after you’ve filed for bankruptcy is ineligible to be discharged through the filing, since you did not have the debt when you asked for debt relief.

Why is Filing Bankruptcy Helpful?

When you can’t keep up with the bills, you’re under a high level of stress. Bankruptcy is never a first option for people; many have tried things like getting extra jobs, selling unwanted possessions, or asking family members for loans before arriving at bankruptcy as their best option for debt relief.

By wiping out debts, bankruptcy reduces stress immediately. Collectors are not allowed to come after individuals who are going through bankruptcy, so threatening phone calls and letters will end immediately.

A Chapter 13 bankruptcy can promote good financial habits, because in this form of bankruptcy, some amount of debt is repaid under a plan. By helping to increase financial literacy and instilling good financial habits, this partial repayment can keep people in the black once debts are discharged.

The biggest downside to filing for bankruptcy is that it impacts your credit, so you may find it difficult to take out loans for up to ten years after the bankruptcy. Your credit score also impacts things like the interest rate offered on loans and your ability to pass a tenant screening, so there are other ramifications to consider.

If you’re not sure whether a certain debt will be forgiven or which type of bankruptcy is right for you, there are resources to help you explore your options, such as credit counselors. If you are thinking of filing for bankruptcy, it’s helpful to get a counselor’s opinion on your specific circumstances and what to expect after filing.

If you have back tax debt, we highly recommend readers to reach out to our firm first. Our clients never have to talk to the IRS, and tax resolution through our firm can save you money and time in the long run. You might also be eligible for other IRS relief programs or get your penalties reduced or removed. Reach out to our firm today for a consultation.

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August 7, 2020Categories: back taxes, filing taxes, taxes

Work from Home Tax Forms: How to Store Them, How to File Them and How to Reduce Your Liability

Working from home can be a dream come true, especially if you also work for yourself. Opportunities for freelancers, gig workers and other self-employed men and women have exploded in recent years, giving people the freedom they crave without sacrificing the income they need. This is far more evident with the current COVID situation where millions of Americans are now commuting from their bedroom to the dining room table for a Zoom call.

That freedom and flexibility can be intoxicating, but there is an unwelcome hangover as well. Tax issues can make working from home less attractive, and more expensive, leaving many gig workers, new freelancers, and small business owners frustrated. But if you plan carefully and know what to do, you can reduce the tax headache and enjoy the perks of working at home. Here are some key things to know before the tax man comes calling.

But before we jump into tax strategies, it’s important to note that the IRS is increasing enforcement in the coming months and even years after this pandemic. More small businesses and independent contractors are going to find themselves getting letters from the IRS requesting for more information or stating they owe money to the IRS. If you have any tax trouble or owe more than $10k to the IRS or state but can’t pay in full, contact our firm today.

So, lets jump into some best practices for keeping your tax records clean in case the IRS comes knocking on your door.

Gather Contact Information from Your Clients

Whether you are preparing sales brochures for local businesses, designing websites for new startups or putting together dozens of individual side hustles, it is important to have contact information for every client.

The typical freelancer may have dozens of clients in a single year, and being able to contact them is an essential part of doing business. So go through your email lists, sort out your invoices and create a database of addresses and telephone numbers. Hopefully you will receive all your documents on time, but if not, that contact information will help you track down the missing paperwork.

Store Electronic and Paper Copies

The old saying that it is better to have it and not need it than need it and not have it is doubly true when you are self-employed. For gig workers, freelancers and other self-employed individuals, the loss of a single tax form could delay filing for months and even trigger an audit by the IRS.

That is why it is so important to build redundancy into your document storage. That means scanning each 1099 form as it is received, storing it on your hard drive, cloud account and offline storage device. It also means making paper copies of those critical documents and storing them in a safe place. These tax forms will be important when the tax filing deadline rolls around, so make sure you have them when you need them.

Keep Your Own Ledger

In a perfect world, every freelancer and at-home worker would receive all the tax forms they need, but that perfect world is the exception and not the norm. If you want to be ready for tax time and avoid unwanted entanglements with the IRS, you need to keep your own ledger.

Having your own records to back up your earnings estimates will help you in many ways, from qualifying for lower cost health insurance to getting a jump start on your tax return. It may be a little extra work, but keeping your own ledger will pay off in the long run.

Check Off Each Form As It Is Received

Now that you have your ledger in hand (or on your computer), you can cross reference your records and check off each 1099 form as it is received. When you have crossed the last form off your list, you can start filing your taxes and get the refund you deserve.

Be sure to scan each form as you receive it and make several backup copies. Having this documentation on hand will make your life easier should the IRS question part of your return or request additional information about the income you are claiming.

Reduce Your Tax Liability with a Solo 401(k) or SEP-IRA

Many new freelancers and gig workers are surprised at the high taxes they are required to pay, and the self-employment tax can be a particularly devastating blow. This extra tax is assessed to self-employed individuals, and it can have a big impact on members of the gig economy.

You may not be able to eliminate the self-employment tax, but there are steps you can take to keep your tax liability to a minimum. Retirement plans for the self-employed are among the most generous around, and opening a solo 401(k) or SEP-IRA could allow you to shelter tens of thousands of dollars in income.

These self-employed retirement plans do require some setup and a fair amount of paperwork, but once in place they can be used year after year to reduce your tax liability, so you can keep more money in your pocket and send less to the IRS.

Being self-employed and working from home can be wonderful, but it is important to be prepared for the realities. One of those unpleasant realities is taxes, and keeping track of your work at home tax forms will be critical as you make the transition. The tips listed above can help you keep proper records, stay on the right side of the IRS and even reduce your tax liability.

OWE BACK TAXES?

Our firm specializes in tax resolution. We serve clients virtually so don’t hesitate to reach out.  If you want an expert tax resolution specialist who knows how to navigate the IRS maze, reach out to our firm and we’ll schedule a no-obligation confidential consultation to explain your options to permanently resolve your tax problem.

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August 7, 2020Categories: back taxes, filing taxes, Tax Resolution Strategies

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Ron Friedman Tax Relief Pro

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Suite 310, Tarrytown, NY 10591
Tel: (914) 712-6919
Fax: (914) 631-0939
ron@ronfriedmancpa.com

Recent Posts

  • If You Don’t Have Money to Pay Your Taxes, You Have Legitimate Options
  • Is it Bad to Settle With the IRS?
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