Do you owe a lot of taxes? Are you nervous that the IRS or the state will take all your money and leave you nothing for expenses like food, housing, cars, insurance, etc.?
Tax resolution or tax debt settlement can be confusing subjects that often seem overwhelming to the person who has a tax debt in default. The first thing I want to say to everyone, however, is that no matter what part of the process you find yourself in, you’re hiding under a rock from the IRS and/or the state, or you’re only recently in arrears with your taxes or just want to get rid of that burden on your shoulders – relax.
So relax… Did you know the IRS and/or the state can’t take more money than you can afford? What is the definition of what you can afford to pay? 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 pay for accommodation, food, medicine, cars, insurance, etc. These expenses are classed as your “allowable living expenses”.
Your income minus your allowable living expenses equals the amount of money that the IRS and/or the state can claim – also known as disposable income. Your goal is to reduce your disposable income to the lowest possible amount, thereby reducing the amount you have to pay back. If you have no disposable income, the IRS and/or the state cannot withhold anything from your income. The key is – let them know you have no disposable income. Do this by filling out the correct forms and using the IRS and/or state repayment calculations.
While how much you owe plays a role in how much you have to pay back, it plays less of a role than what you can afford to pay back. The United States has laws and you have rights that protect you from paying off more of your past-due tax debt than you can afford. Again, minimize your disposable income and minimize your repayment.
The IRS or the state can also force you to liquidate assets. They don’t usually require you to sell the family home or car, but if you own other types of assets (non-occupied real estate, boats, RVs, etc.), the IRS will require the equity of those items. If you can either show the IRS that those assets don’t have equity, you need those assets to work, or you can make monthly payments on your tax bill that allow you to settle your entire balance within your allotted timeframe, then you may often keep this asset.