The Holidays are here, but don't get tempted to spend money you owe the IRS! Remember that the time to pay taxes is right around the corner. With that in mind, here's some of the top questions I'm asked about taxes and tax debt.
I can’t pay my tax debt. I have no assets, and I live under the poverty level. What can the IRS do to me?
If you are truly unable to pay the IRS and you have nothing available for them to seize then they can’t collect on the debt. You can be put into a status called Currently Non Collectible in this situation. The IRS can revoke that status if your financial situation ever improves.
Can I get a home loan with a tax lien on my credit?
Probably not since a tax lien is a serious black mark on your credit. In fact you’re not going to be able to get a loan for anything. Unfortunately the only way to get a tax lien removed from your credit is to pay off your full debt.
How much of my wages can the IRS garnish?
The IRS determines how much they’re going to garnish from your wages based on your gross income minus basic living expenses. Using this formula the IRS can take as much as 50-75% of your paycheck.
Can I write off the tuition to my child’s private school on my taxes?
No, the IRS does not consider private school tuition to be a necessary expense. It falls into the IRS’s luxury category making it impossible to claim.
Can the IRS come after me and my assets if I marry someone with a tax debt?
Yes they can. When you marry someone with a tax debt you also marry their tax debt. That means the IRS can garnish your wages, and seize your bank accounts just as they can your spouse.
Is there any way to stop the IRS from taking my tax return refund?
If you have an IRS debt then there isn’t any way to stop them from applying your refund to your debt. Remember, until that debt is paid everything you have the IRS can take to apply to your debt.
If two people claim the same child as a tax credit, for example the child’s grandparent and parent. Who gets the child tax credit?
Child tax credit goes in the order of the child’s relationship to whoever is claiming them. So with the above example the parent would have the first crack at the credit over the grandparent. Now if the grandparent can prove that they had taken care of the child for the tax year in question then they would be eligible for the credit; but the burden of proof rests on them.
Can you get a rapid refund if you owe the IRS?
No, if you owe the IRS then any refund you’re entitled to goes to your debt. What’s even worse about the rapid refund is that a rapid refund is a loan from the tax prep company that gave it to you. So if you tried to get a rapid refund while you owe the IRS, not only will you still owe the IRS, but now you have to also pay back the rapid refund loan.
I look forward to receiving more questions from the average American with tax problems.
I'm taking a break until Monday for Christmas. I hope everyone has a Happy Holiday!