The most reliable time of the year is certainly tax time — a period most Americans look at with either cautious optimism or complete terror.
It’s been a complicated year with complicated implications for tax season, meaning more taxpayers than ever are likely to have to familiarize themselves with the concept of tax debt.
What is tax debt? When a person underpays or misrepresents their income to the IRS, they owe the missing money to the government when this error comes to light. Whether a purposeful attempt at concealing cash or an accident, the person must pay the cash with penalty interest. How does tax debt work? Read on and we’ll walk you through what you need to know.
What is Tax Debt, Exactly?
All money owed to the IRS after your taxes have been submitted could be considered a tax debt. This isn’t at all uncommon.
Every year, hundreds of thousands of Americans find that they owe money to the IRS that they did not expect. Most of these accounts and debts are the result of simple errors.
The debt that needs to be paid generally is not all too significant amounts, but still might feel substantial to the individual needing to pay up.
How Serious Are Underpayment Penalties?
Getting a letter from the IRS can be a disconcerting experience, no doubt. If that letter does claim you’ve underpaid what you owe to the government, there are penalties you’re going to have to face.
When you fail to pay your taxes or pay too little, you end up being charged an additional percentage on top of the amount owed. Traditionally, this fee starts at .5% of the money owed, but can increase month-by-month up to 25%.
The interest is compounded until your debt is paid, meaning that the total you owe could quickly add up and become quite stressful.
At a certain point, if your debt is not paid, you could face additional threats from the IRS. They could place a tax lien on your property and seize your assets. They might be able to garnish wages directly from your paycheck without your permission.
If you get into a tricky tax situation with the money you owe, it is well worth it to speak with a tax professional and see what options might be available to you.
There are many steps one can take to help mitigate or abate the debt they owe to the IRS. Installment agreements or offers in compromise are common and well accepted. A tax relief oic can be complicated to understand on your own, and getting help from a professional can help get you over the hump of this issue.
Seeking Tax Debt Help
What is tax debt?
It’s no fun to owe money to anyone, least of all the IRS. If you find yourself in a position where you do owe this money, you will have incurred a tax debt. The above information can help you understand all you need to know on the subject.
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