There is a month left until the April 15th tax filing deadline, and if you're avoiding preparing your Form 1040, it's time to get busy. Dig out your W2s, 1099s, mortgage interest and student loan interest statements and charitable donation receipts – then sit down and do your taxes. If your taxes are complex (or you're clueless), investing in well-reviewed tax preparation software may be a better route. Or, contact an experienced tax expert like a CPA. The tax prep providers you see at WalMart and other retail locations are not usually accountants. They are just regular Joes trained to do simple taxes and are likely not experienced or knowledgeable enough to deal with anything but the most basic of returns.
Maybe you haven't prepped your taxes yet because you're a procrastinator. Or maybe it's something more serious like that you know you can't afford to pay your tax bill. Even if this is the case, you shouldn't neglect to send in your tax return. There are two main reasons why. Tax debts that result from a properly and timely filed tax return have a statute of limitations for collection. The IRS typically has 10 years from the date you file to collect on taxes. If you don't file your return though, this clock doesn't start ticking.
Second, if you are so deep in debt that you're considering filing bankruptcy, you may be able to have some of your back tax bills discharged as part of the filing. But only properly filed tax returns are eligible for forgiveness. The tax debts must be at least three years old, and the returns must have been filed at least two years prior to filing bankruptcy. If you didn't file your returns on time, even if they are older than three years, they likely won't be eligible for discharge.
Third, as frightening as the IRS may seem, the agency will work with you to resolve tax debts you owe but can't afford to pay. For any tax bills that aren't eligible for a bankruptcy discharge, you can work out a payment arrangement. The IRS may allow you to make installment payments to satisfy the debt, or they may accept an Offer in Compromise (OIC). An OIC is essentially a negotiated settlement. You propose an amount that you can afford to pay and the IRS will approve or deny the proposal.
If you file for a Chapter 7 bankruptcy, also known as a liquidation, back taxes that meet the requirements may be discharged. And, by freeing yourself up from your other debts, you may have enough money left over to work out a payment plan or make a settlement offer to the IRS. This can get you a debt-free fresh start. If you file for a Chapter 13 bankruptcy, you can make payments to catch up on your taxes as part of your plan. At the end of the repayment plan, any unpaid tax balances on properly filed returns may be discharged.
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