It’s a jungle out there… Times are hard, and many people, possibly you; have lost their jobs. What’s worse is that you’ve taken out of your 401k to cover your bills until you can get back on your feet. Now that money is gone, your job situation hasn’t improved and you got a letter from the IRS stating that you have a tax debt.
When it rains…How did this tax debt happen, and what can you do about it? The cause is simple; the correct amount of taxes weren’t taken out when you withdrew the money from your 401k. When you withdraw money from a 401k or any other investment you should expect to have to pay the IRS around 30% of that money. But that money’s gone, it went to paying for basic bills. So how are you going to pay your IRS debt without any income or liquid assets?
Don’t be lured by false hope…There is a couple of promising solutions available based on your situation right now. But before you go and try to negotiate with the IRS to get your debt reduced or erased ask yourself one question: where will I be in a year?
The two solutions I’m talking about are the Offer in Compromise and Currently Non Collectible. Both of these are solutions for people who have been hit hard by financial trouble, and both of them can take the IRS up to a year to make a decision on.
Answers to questions…So why is the question: where you will be in a year important? Because both IRS programs have very strict financial guidelines that you must meet in order to be accepted. And if during the year you’re waiting for a decision you get a job and your financial situation improves, you would no longer be eligible.
So where does that leave you? Let’s go over your grim situation…you’re unemployed, or you’re working at a job that pays far less than you made before. You have to make decisions about what bills you can pay and which ones you can put off. On top of that you have an IRS tax debt.
Real, not perfect solutions…Your only real option is to setup a monthly payment plan with the IRS. Because of your situation you payments should be low. Even though you won’t even be paying enough to cover the interest, you are paying the IRS something. That way the IRS won’t take any collection actions against you.
Once your situation improves you will have to renegotiate your payment plan with the IRS, but the most important thing for you right now is to keep the IRS from kicking in your door and seizing all of your assets.
Now you have the smoking gun…Use it!