A bone to pick... There's nothing more irritating than the current glut of TV commercials promising "get rich quick" tax settlements for "pennies on the dollar" and getting a legal settlement amount in "one lump sum."
Hard times... Every American is worried about money, and desperation can lead sensible people to do non-sensible things. And not being sensible can not only cost you money that you don't have on the promise of something good; being non-sensible may also get you into tax debt.
Do you really want that money now? I want to focus on the "get your structured legal settlement in one lump sum" commercials. While there are more than enough concerns about these companies, I want to focus on the ramifications to your IRS tax debt.
Let's say you get that lump sum. The company who did it for you takes out their substantial fee, but now you have a nice fat check and everything seems good, right?
Wrong! Because that lump sum of money you got counts as income when you file your taxes. And the IRS wants their cut. Not only do you have to pay taxes to the tune of 20-30% of your money, you have to report the full gross income on your tax return. If the settlement amount was big enough, this can bounce you into a higher tax bracket and cause you to have an IRS tax debt, which may be even higher if you didn't take the correct amount of taxes out of your lump sum payment.
Trouble brewing... If you're injured and unable to work, you could be in real trouble right now. Hopefully, you have enough of that money to pay off the IRS debt. If you've had to use it to pay other bills and don't have anything left, then you owe the IRS and you don't have the money to pay them.
Beware of inflated promises... A large sum of money can always seem like an answer to prayers. But those lump sums can turn into nightmares when dealing with the IRS. And this extends to any lump sum payout, including 401k, gambling winnings... even if you win a car, you have to report it as income. So before you go for the big money and fabulous prizes, make sure you can pay the devil his due.
Now you have the smoking gun... Use it!
Labels: Back Taxes, Tax Scams