Speak With Denver Bankruptcy Lawyers Wink & Wink to Learn How Tax Debts Can Be Erased
Tax time can not only be stressful from all the confusing paperwork and requirements, but it can also become overwhelming if you still owe lots of money.
Maybe you’re self-employed or a freelance or contract worker and you haven’t been paying enough estimated taxes, or any, throughout the year. Or maybe your employer calculated wrong and didn’t withhold enough money to go toward income taxes.
You might also have just made an honest mistake when filing your taxes, and then the IRS comes back and says you owe them more money.
If you’re not able to pay off these back taxes, they can grow out of control. Like other forms of debt, there can be financial penalties, and those can compound over time, leaving you in desperate need of tax debt relief. The IRS can start hassling you, threatening to put a lien on your property or levy assets.
So you may be wondering: Is filing for bankruptcy a way to eliminate the overwhelming tax debt that you owe?
If you’re dealing with crippling debt, whether from taxes or for other reasons, it’s time to speak with a trusted bankruptcy attorney, such as Wink & Wink of Denver, Colorado. They can review your specific case and determine the right approach to getting debt settlement.
Options for Tax Debt Relief
If you have tax debt, there are a few ways you can take care of it.
- Pay it off in full. If you do have the money, you can simply pay off the debt.
- Pay it off in an installment plan. Work with the IRS to create a payment plan, where you pay a certain amount each month, until you eventually pay it off in full.
- Do an Offer in Compromise program. Work with the IRS to come to an agreement, where you pay what you can and they forgive the rest. Note: This can be very hard to qualify for and it is best to have tax resolution professionals such as Wink & Wink to represent you throughout the process.
- Temporarily delay the collection process (i.e uncollectable status). If the IRS determines that you are unable to pay the debt, they may allow you to delay paying it back until your financial situation improves.
Many of the options above, other than paying off back taxes in full right now, may help your debt situation in the short term. But they will also add to your overall debt burden, due to interest and other penalties.
Another option for tax relief is filing for bankruptcy. This may or may not not eliminate your back taxes entirely, but it can help for a number of reasons.
Chapter 7 Bankruptcy
Once you file for bankruptcy, an automatic stay goes into effect. This stops creditors, such as the IRS, from continuing to try to collect on debts you owe them. They can’t demand payment, they can’t put liens on your property, and they can’t seize your assets for a period of time. This, in turn, buys you some time.
Chapter 7 bankruptcy can indeed discharge income tax debt. However, it won’t discharge certain taxes such as property taxes or trust fund taxes (i.e. payroll tax and sales tax).
In order to get your income tax debts discharged, they must meet certain requirements.
- The income tax debt you owe must be for a return that was due at least three years ago.
- You must have filed tax returns at least two years ago.
- Any reassessment of liability by the IRS or state must have occurred at least 240 days ago or not occurred yet at all.
- You did not commit willful evasion or tax fraud.
Note: Though your tax debt may be discharged when you file for Chapter 7 bankruptcy, the bankruptcy will not eliminate any prior tax liens. You’ll still have to pay off that tax lien before you can sell or transfer property subject to a new owner.
Chapter 13 Bankruptcy
Like Chapter 7 bankruptcy, you can discharge certain tax debt in Chapter 13 bankruptcy. However, there are certain taxes you must pay through Chapter 13’s three- to five-year repayment plan.
Chapter 13 repayment plans require you to pay “priority debts” first. Priority debts cannot be wiped out by filing for Chapter 13 bankruptcy – they must be paid. Certain taxes are considered priority debts. Examples of priority debts include:
- Property taxes you incurred within one year before you filed for bankruptcy.
- Payroll taxes.
- Recent income taxes that don’t meet the requirements for non-priority debts.
Tax debts can become non-priority debts if they meet the following requirements, which are the same as debts in Chapter 7 bankruptcies:
- The income tax debt is from a return that was due at least three years before you filed for bankruptcy.
- You filed the tax return at least two years prior to filing bankruptcy.
- Any re-assessment of your tax return by the IRS or state occurred at least 240 days before you file bankruptcy.
- You did not commit willful evasion or tax fraud.
Once priority debts are paid off, you may be required to pay off some nonpriority debts depending on your income and assets. Many types of nonpriority debts will then be discharged. Examples of dischargeable nonpriority debt include credit card and medical bill debt. If your tax debts are also considered non priority debts, because they meet the requirements above, they are likely subject to your bankruptcy discharge (i.e. you won’t have to pay them).
Consult a Denver Debt Settlement Attorney to Get Tax Debt Relief
If you’re dealing with overwhelming debt, it’s time to consult a debt settlement attorney, such as Colorado’s Wink & Wink. It can be challenging to determine the smartest way out of debt, but they can assess your situation and find the right solution. Call 303-410-1720 today or contact us online to begin getting this much-needed help.