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The gig economy has led to a great many people who are forced to pay self-employment taxes. For many, this can result in significant tax debts well out of proportion with the income they receive, or their ability to pay taxes.
The IRS will often work with taxpayers to create payment plans. This can be helpful save for the fact that the tax debt can in turn grow larger every year. This pushes payments ever-upward, which can in turn leave you in a state of distress.
Self-employed people aren’t the only one with this kind of problem, but it’s very common. It can also happen to sole proprietors and LLC owners.
Bankruptcy may offer a solution. But this solution will require some careful strategic thought. The law limits the number of bankruptcies you may file, which means negotiating with the IRS is often a smarter first step.
Forms of IRS Debt Relief
There are 2 forms of relief you should know about:
- Innocent Spouse Relief. This form of tax relief is available when your divorced former spouse carries a significant tax load that you weren’t responsible for.
- Offer-in-compromise. If the IRS determines it is unable to collect the full balance it might be willing to settle with you for a significant discounts.
These are in addition to the aforementioned payment plan programs.
As with anything involving the United States government, each of these programs carries some stringent requirements. It may be wise to work with an attorney who can speak to the IRS on your behalf, even if you do not ultimately file for bankruptcy.
Bankruptcy Relief for Federal Taxes
You may discharge a tax debt in bankruptcy as long as it is over three years old. If you have newer tax debts you might want to consider a Chapter 13 bankruptcy over a Chapter 7, since the remainder of the balance could then be rolled into your Chapter 13 payment plan.
Doing this will stop the flow of interest and penalties, and will allow you to pay off your tax debt without it continuing to accrue. It is a good idea to make sure your attorney factors your future quarterly tax payments into your budget so that the court leaves you enough money to avoid accumulating even more IRS debt.
You cannot discharge any tax debt if you filed fraudulent tax returns for the periods listed.
Get help with your tax debt today.
Owing money to the IRS is stressful. We’re here to help. Contact Ledbetter Law Firm for a free consultation today.