Is bankruptcy the best solution to significant tax debts?

Filing an annual tax return allows someone to verify that they have paid a sufficient amount in income taxes. The Internal Revenue Service (IRS) reviews information provided by employers and financial institutions when verifying the tax returns submitted by individuals. Occasionally, those who thought they paid their taxes in full actually owe the federal government quite a bit of money. Tax debt can be a very serious financial concern. The IRS can increase the overall amount of the debt by imposing financial penalties for failing to pay income taxes on time and in full. Interest also begins accruing from the date when someone should have paid their taxes to the federal government. Even if a taxpayer attempts to make payments on what they owe, they may find that their tax debt simply continues to increase. Many people with high levels of tax debt feel desperate and want the fastest solution for addressing what they owe. They might start considering a personal bankruptcy filing. Can bankruptcy help people resolve major tax obligations? Most tax debts aren’t dischargeable Bankruptcy helps people who struggle financially by temporarily stopping collection activity and potentially discharging some of their debts. Eligible debts include credit card balances and even old hospital bills that someone cannot pay in full. Most tax debts are not eligible for inclusion in a bankruptcy filing. People cannot eliminate past-due property taxes, for example. In certain, limited situations, taxpayers can discharge some federal income tax debts through bankruptcy. Tax debts that are more than three years old are potentially eligible for discharge in a personal bankruptcy filing. More recent tax debts are not. Generally speaking, the IRS is likely to engage in aggressive collection efforts well before someone reaches that three-year threshold. In some cases, the IRS may even communicate tax issues to prosecutors due to suspicions of fraud or evasion. For the most part, those dealing with the immediate and ever-growing threat of income tax debt don’t get the relief they might expect from a bankruptcy filing. There are other options available Sometimes, a thorough financial review can prove that the IRS miscalculated someone’s tax debts. Mistakes do happen. Other times, taxpayers can propose offers in compromise that allow them to regain control over their tax debt. An offer in compromise could lead to a lump-sum settlement for less than the full balance owed or a payment plan that works with someone’s current budget. Before filing for bankruptcy, those struggling with income tax debt may need to explore their other options that may offer better relief. With that said, this process can relieve debtors of other burdens that may allow them to more effectively deal with their tax obligations. Understanding all possible solutions for past-due income tax payments could help people regain control over their finances.The post Is bankruptcy the best solution to significant tax debts? first appeared on The Peck Group, LC.