If you owe money in taxes you might find yourself easily caught up in the process of struggling with your debts. It’s not easy to get caught up with taxes if you already owe money from several years. It may seem as though you’re just starting to get further ahead when the next tax year rolls around. The idea of repaying taxation debt may seem impossible especially when you get trapped in the cycle. If you are tempted to file for bankruptcy in an effort to resolve your taxation debt, here are some things you should know first:
Not all of your debt may be considered dischargeable during bankruptcy. A chapter 13 bankruptcy may not allow you to discharge any of your tax debts in the same way that a chapter 7 bankruptcy would. It’s also important to consider that there are several layers of taxes that you may need to seek debt relief for. Bankruptcy may not cover debt relief on property tax, sales tax for a business, state tax and federal tax. If you’re choosing to file under Chapter 13 or Chapter 7 you need to consider meeting the needs of discharge which are:
- Having owed taxes that are at least three years overdue
- Taxes that you still owe on debt that has been in place for two or more years
- Assessment on tax debt you have incurred at least 240 days before filing your next tax return
- A demonstration that you have not committed fraud or tax evasion.
If you are able to meet all of these standards there is a small chance that you could discharge a portion of your tax debt. Demonstrating that you fall within this need can give you an opportunity to forgive some of the debt but you will still be responsible for repaying a portion of your taxes. What often happens in this case is you will be forced to create a tax repayment plan. Taxation repayment plans will give you the chance to discharge your debts without penalties from the IRS.
If you’d like to make sure that you will not be subject to penalties from the IRS, it’s important that you are working with a tax professional throughout the process of discharging your debt or forming a repayment plan. During your repayment plan you might also qualify for the chance to lower your interest rate. The process of negotiation could be all you need to do in order to lower the rate that you would otherwise be charged. Working with an experienced bankruptcy attorney could be another edge that you could gain in working to reduce your penalties from the IRS. Consulting with a bankruptcy attorney could let you know about some of the ways that you could experience debt relief and establish a proper plan for repaying your debts.
There are some non dischargeable tax debt that you may face that even the most skilled bankruptcy attorney cannot assist with under Chapter 7 bankruptcy:
- Property taxes: If you have property taxes that were incurred before you filed for bankruptcy, any of these extra taxes are considered to be non-dischargeable. You could just charge some of your personal liability and property taxes but anything that is taxable under a Corporation before you file for bankruptcy will not be considered dischargeable.
- Tax liens: A taxation lien or secured tax will be directly attached to your property and this means that it cannot be lifted from what you owe. Tax liens that are recorded against your property will stand even after you file for bankruptcy and you’ll have to pay these liens out of any of the profits that you would make selling the property as well.
- Third-party taxes: trust fund taxes such as Medicare, income taxes and FICA that an employer might hold will be required to be sent into the government as well.
- Non-punitive tax penalties on dischargeable taxes: if penalties occurred less than three years before you file for bankruptcy, you may be responsible for paying tax penalties in full.
- Employment taxes: employment taxes will not be waived such as a need for custom duties, excise taxes and more.
If you are stuck in debt and you could use debt relief from the heavy taxation debt, you should seek the assistance of a bankruptcy attorney today. Working with a bankruptcy attorney could help you to discharge some of your debt or acquire a lower interest rate on your taxation debt. Debt relief from taxes is possible but it’s always wise to work with a skilled professional to make sure that you are going through the right channels and proceeding accordingly to discharge the right debts. Contact us today for a free consultation!