Forgiven Debt

Do You Owe Taxes on Forgiven or Cancelled Debt?

Do you owe creditors money you can't afford to repay? You may be eligible to have the debt forgiven or otherwise canceled. When this happens, you no longer owe your creditors the money that you used to owe them.

What you need to know is, the IRS usually treats such canceled debt as income. Income that you could owe taxes on. If you fail to report it or fail to pay taxes on the cancelled debt, you’ll end up owing penalties and interest. Over time, that could become just as big of an issue as your original debt.

When Do I Not Owe Taxes On Forgiven Debt?

In some cases, you may get an exemption and there are some circumstances in which you won't owe taxes.

Your Debt is discharged through bankruptcy proceedings: If you are in serious financial trouble, you may file for bankruptcy. By filing bankruptcy, you may have your debts discharged by the court. Bankruptcy debts,  are not considered taxable when forgiven.

You're insolvent: When you are able to settle with a creditor by paying them less than you owe them, your financial situation may be bad enough that you owe, in general, more than you own. If the IRS considers you financially insolvent, you may have either part or all of your debt excluded from taxation. If you believe that you qualify for insolvency exemption, you should hire a tax resolution professional to help make sure.

A canceled debt from friends or family:
If you borrow from friends or family and have them forgive the debt, the money forgiven is considered a gift. Gifts are not taxable income.

Tax-deductible interest: Forgiven debt that includes interest that is tax-deductible. You do not need to report the interest component as taxable income. Discharged student loans are also usually exempt from taxation.

Forgiven Debt
1040 tax form

Including the forgiven debt in your tax return

Didn't tell your tax professional about the forgiven debt? If you did not tell your tax professional about the forgiven debt, you likely won't know about the tax liability until you receive a notice in the mail about it. Usually, a creditor who forgives you over $600 sends you a 1099-C form stating the amount forgiven. If the debt forgiven is exempt, you may need to fill out a Form 982. Form 982 states how much should be exempt, and why.

What do you do if you pay taxes on forgiven debt that should be excluded?

If debt forgiven is exempt from taxes, but you still pay, you're may amend your tax return. You may amend your tax return for three years. You simply need to file Form 1040X and mention your exemption on Form 982. Working with forgiven debt can be complex. It is usually a good idea to hire a tax resolution professional to work out the details.

About Tower Tax Relief LLC

Our firm specializes in IRS Resolution, and the protection of our clients is our number one priority. We serve clients virtually or in person, whichever makes you most comfortable. If you want an expert tax resolution specialist, who knows how to navigate through the IRS storm, and will advocate on your behalf, reach out to us - Tower Tax Relief LLC. Call us today, we are ready to help - 469-206-4050. The first step will be to schedule a confidential consultation to explain your options to permanently resolve your tax problem.


1040

How to Stop an IRS Tax Levy

Of all the creditors or companies you might owe money to, the Internal Revenue Service can be the least forgiving about debt. If you don't pay your taxes, the IRS will levy and take possession of your property, including cash accounts, wages, and real and personal property. The IRS will sell non-liquid assets to raise funds to satisfy the debt you owe.

If you’ve received a levy notice from the IRS, it’s time to ACT IMMEDIATELY. Our firm may be able to get your levy released the same day but you must call now for a confidential consultation.

Forewarned Is Forearmed

Unless you don't open your mail or you moved without leaving a forwarding address, you probably won't be blindsided by an IRS levy. You'll receive a "Notice and Demand for Payment" of your tax debt well in advance of any action taken.

If you ignore this notice, the IRS will follow up by sending you a "Final Notice of Intent to Levy and Notice of Your Rights to a Hearing." Now the clock begins ticking.

You have 30 days to pay your tax debt or to contact the IRS to try to stop the levy. Even if you're unaware of the levy proceedings, your employer has a little bit of time to warn you if he receives notice that the IRS plans to take the bulk (up to 90%!) of your paychecks. Your employer doesn't have to begin sending your earnings to the IRS until the next pay period. With any luck, your employer will let you know what's going on within this time frame, so you can take action.

If the IRS levies your bank account, the bank will freeze the money in the account and remit it to the IRS after 21 days. Therefore, you must act quickly to try to have the funds released upon receiving a notice that the IRS has levied your bank account.

Contact A Tax Relief Firm

Now is not the time to do it alone. If you call the IRS, they will often trick you into giving incriminating answers, further distancing you for the tax relief you so desperately need.

They are not your friend. They are there to collect what they believe you owe in taxes. Contact a professional experienced in tax resolution to help you with your case. Would you go to court without a lawyer? Well, it’s the same with the IRS. You need professional representation from a CPA, Enrolled Agent or tax attorney who is also a tax resolution specialist.

Establish Hardship

If the IRS intends to levy your pay or Social Security benefits and you can't come close to making ends meet on what's left, the IRS wants you to contact them. The contact phone number should appear on the levy notice. DO NOT CALL THE IRS (see our note above).
The law requires that the IRS leave you with the total of your tax exemptions for the year plus your standard deduction divided by 52 if you're paid weekly.

Gather your documents and call our firm. We’ll help make the case to the IRS and explain that the levy will cause hardship for you and your family. You'll have to provide documented evidence of this, but if you do, the IRS will release the levy. This doesn't mean you no longer owe the tax. It just means that the IRS will leave your earnings and income alone and work with you to figure out some other way for you to satisfy the debt.

Make Payment Arrangements

We can also ask for payment terms for your tax debt even if the levy won't cripple you financially. If you enter into an installment agreement, the IRS will typically release the levy unless the notice you received specifically states otherwise.

You Can “Settle” For Less Than You Owe

An offer in compromise allows you to settle your tax debt for less than the full amount you owe. It may be a legitimate option if you can't pay your full tax liability, or doing so creates a financial hardship. The IRS considers your unique set of facts and circumstances:

  • Ability to pay;
  • Income;
  • Expenses; and
  • Asset equity.

The IRS will generally approve an offer in compromise when the amount offered represents the most they can expect to collect within a reasonable period of time. It’s best to explore all other payment options before submitting an offer in compromise as the Offer in Compromise program is not for everyone. Make sure you hire a tax professional to help you file an offer, and be sure to check his or her qualifications.

The IRS really doesn't want to destroy you financially. It just wants the money it's owed. If you can make some arrangement to pay or prove that you don't owe the tax, or if you legitimately cannot pay it at this time, you may be able to make the levy go away.

About Tower Tax Relief LLC

Our firm specializes in IRS Resolution, and the protection of our clients is our number one priority. We serve clients virtually or in person, whichever makes you most comfortable. If you want an expert tax resolution specialist, who knows how to navigate through the IRS storm, and will advocate on your behalf, reach out to us - Tower Tax Relief LLC.  We’ll schedule a confidential consultation to explain your options to permanently resolve your tax problem. Call us today, we are ready to help - 469-206-4050.


How to Protect Yourself When Paying Taxes – Vital Steps You Need to Take Now

Tax season can be an unpleasant time of year for a lot of taxpayers, especially if you owe money to the IRS or State. The only thing you can do is make the most of it, prepare ahead of time, and pay the lowest amount allowed by law.

Whether you are due a refund or writing a big fat check to the IRS, there are some steps you should take after your return has been filed. Here are three critical steps to take once the tax filing deadline has come and gone.

Step #1: Print Off Hard Copies of All Your Forms and Receipts

Even if you save all of your documents on the computer and in the cloud, it is a good idea to print off hard copies and store them in a safe place. From the 1099 forms detailing your interest and dividend payments to the receipts that back up your charitable donations and business expenses, you never know when you will need this information.

You will appreciate having those hard copies on hand if your computer crashes or your cloud storage service fails. It takes only a couple minutes of printing, and those couple minutes could save you weeks of hassle down the road.

Step #2: Check Your Refund Status Or Balance Due Online

Even if you file electronically, you cannot expect instant service on your tax refund. It is the IRS after all. Even so, you should see quick action on your return and a notice that it has been accepted. Keeping an eye on your tax refund is one of the best ways to protect yourself and make sure the money you are owed does not end up in the hands of identity thieves.

This is also true if you owe money to the IRS. There have been tax identity theft cases where someone else files a tax return with your social security number, leaving you to deal with the liability or adding on to the amounts you owe.

If you use a tax filing software package, you should receive a notice by email when your return is submitted to the IRS, and another when it has been accepted. Watch your email box carefully and follow up if you do not receive those notifications within a day or two.

Once a week has passed, be sure to check the Where's My Refund page at the IRS.gov website to see where your refund stands. This handy tool provides a real-time picture of your refund status, from the time it is received by the IRS to the minute the money hits your bank account.

If you owe money, log in to your IRS account here https://www.irs.gov/payments/view-your-tax-account and check the balance to make sure it lines up with what you know you owe. If there are discrepancies, contact your tax resolution firm ASAP.

Step #3: Prepare for Next Year

You just filed your taxes, and the last thing you want to do is think about filing for next year. Despite this trepidation, now is the perfect time to start getting your ducks in a row for the filing season to come.

Start by looking at your current year's return and think about ways you could have lowered your tax debt. Perhaps you could have given more to your favorite charity. Maybe you could have increased your retirement savings rate. Knowing what you did wrong this year will make it easy to adjust your strategy and save more money going forward.

Nothing can make filing taxes a truly pleasant experience, but dealing with the IRS is something every American needs to do. Now that your tax return has been duly filed and your 1040 form is on its way to the IRS, taking the right steps can save you money down the line, protect you from identity theft and make future tax dealings a little less stressful.

About Tower Tax Relief LLC

Our firm specializes in IRS Resolution, and the protection of our clients is our number one priority. We serve clients virtually or in person, whichever makes you most comfortable. If you want an expert tax resolution specialist, who knows how to navigate through the IRS storm, and will advocate on your behalf, reach out to us - Tower Tax Relief LLC.  We’ll schedule a confidential consultation to explain your options to permanently resolve your tax problem. Call us today, we are ready to help - 469-206-4050.


How Can I Pay My Federal Taxes With Installments or Monthly Payments?

Every year, there are millions of taxpayers who find themselves unable to pay their taxes in full to the IRS. The IRS knows there will be some taxpayers coming up short. The good news is the federal government is happy to work with you. The bad news is, they’re relentless in their collection of back taxes and if left unattended, they can levy your bank account, garnish your paycheck, or put a lien on your property to settle your tax bill.

However, their cooperation comes at a price, called penalties and interest. Here are the steps you need to take if you wish to pay your federal income tax with installment payments.

Before you proceed to navigating the complicated maze that is the IRS on your own, we highly encourage all our readers to speak to a qualified Tax Relief Expert at our office. You can schedule a confidential, no obligation consultation to explore your options for tax relief.

Here are some steps you can take to get on an IRS payment plan if you can’t pay your taxes in full.

File Correctly and On Time

Trying some fancy 1040 shortcuts or inputting fake numbers on your tax return software to bring your tax bill down is not a solution. In fact, it will land you in deeper trouble. First, if you are going to owe tax and be unable to pay, your return will already face higher scrutiny as soon as you request a payment plan. Making deliberate attempts to file a fraudulent return will only compound your problem, and will lead to more serious consequences.

Waiting until after April 15 to file is also a poor plan, because you will only accrue more penalties. Also, filing an extension does not mean you have more time to pay. It simply means you’ll end up paying more with penalties and interest, sinking you deeper into a hole.

So make sure you file on time!

Attach Form 9465 Installment Agreement Request to your 1040 If You Need More Than 120 Days To Pay

WARNING: It’s best to hire a tax relief firm like ours to deal with the IRS directly. In most cases, our clients never speak to the IRS themselves and have our firm represents them every step of the way. One wrong move can put you in deeper tax trouble so it’s best to have the right firm representing you. Also, Not everyone will qualify for an installment agreement. Contact our firm for a consultation today.

Ok, back to Form 9465…

This is the crucial step. If you have a reasonable reason for the delay in paying your taxes, the IRS can work out a 72 month payment arrangement. However, the late filing penalty can be as much as 5% per month of the outstanding tax debt, for each month or part thereof the tax is owed. The penalty is capped at a whopping 25% of the original tax owed. The failure to pay penalty is one-half of one percent (0.5%) each month up to a maximum of 25% as well. The interest is compounded daily, much like a credit card. The IRS charges interest on top of penalties and interest. There is also an administrative fee to set up the monthly payments, depending on how you intend to pay. When you take into account the penalties and interest the IRS can assess, an IRS tax debt doubles every several years if you don’t address it head-on.

Applying for an Installment Agreement Online

Your specific tax situation will determine which payment options are available to you. Payment options include full payment, a short-term payment plan (paying in 120 days or less) or a long-term payment plan (installment agreement) generally 72 months.

You may qualify to apply online if:

  1. Long-term payment plan (installment agreement): You owe $50,000 or less in combined tax, penalties and interest, and filed all required returns.
  2. If you are a sole proprietor or independent contractor, apply for a payment plan as an individual.

Wait 30 Days For a Reply (if by mail) and Make Sure the Installment Agreement Is Your Best Option

It takes the IRS at least 30 days to process an Installment Agreement Request form. Understandably, after March 31 of each year the processing time is a little longer. During these 30 days, it would be a good idea to pursue other payment options. Plan on paying the late fee penalty and interest when you are comparing the full cost of an IRS Installment Agreement or another loan, such as through a bank or other avenues of credit.

When bank loan interest rates are higher than 6%, the IRS Installment Agreement looks like a fairly good deal. However, tax payers in true financial dire straits due to job loss or other issues need to take pause.

Defaulting on an IRS Installment Agreement is not the same as failing to pay your credit card bill one month. The collections process by the IRS is backed by the federal government, and includes the ability to apply a tax lien against any property owned by the taxpayer.

A delinquent taxpayer should also consider his or her ability to pay next year's tax bill. If the root cause of an inability to meet your tax obligation is recurring, for example related to a small business loss, certainly consider if the business is likely to weather a similar financial situation next year. After all, you can't secure another Installment Agreement if you are already paying one to the IRS. It may be prudent to pay this year's tax with a loan at a higher interest rate if you have the credit available and save the request for an Installment Agreement when you truly have no other option to meet your tax obligation.

Always Keep Careful Records of Forms Filed and Any Correspondence with the IRS

During the entire process of requesting an installment agreement, it is vital a taxpayer keep complete records. If there is communication by telephone, write down the time, date, and the person you spoke with in a log. It is also a good idea to briefly summarize the conversation, especially if there were any specific guarantees verbally given. Save all letters and notices from the IRS with your tax information.

There are a few reasons to keep these records. First, if something should happen to your paperwork, such as it becoming misplaced at the IRS office, you will have a back up to send and prove you complied with filing date requirements. Second, if the IRS fails to follow its own procedures and guidelines you can contact the Taxpayer Advocate Service for help. Finally, just in case your failure to meet your tax obligation turns ugly and leads to litigation, your records are what your legal representation will need to show your effort in paying your tax bill.

About Tower Tax Relief LLC

Our firm specializes in IRS Resolution, and the protection of our clients is our number one priority. We serve clients virtually or in person, whichever makes you most comfortable. If you want an expert tax resolution specialist, who knows how to navigate through the IRS storm, and will advocate on your behalf, reach out to us - Tower Tax Relief LLC.  We’ll schedule a confidential consultation to explain your options to permanently resolve your tax problem. Call us today, we are ready to help - 469-206-4050.