IRS Taxes and Debt Consolidation

IRS TAX RELIEF OPTIONS

You have a number of choices when you have to deal with IRS debt which you can utilize to improve the chances of not getting into problems with the IRS. You need to know about these choices and be better informed to take full advantage of them. If you are unable to understand specific aspects, you can always fall back to take the advice of tax experts.

Some of the options are as under:
Setting up an Installment agreement with the IRS
The IRS is aware that not all can make lump sum payments and settle the taxes they owe in full at one go. They therefore are willing to discuss and arrive at a plan that allows staggered payment which is affordable and agreeable to the tax payer. This is a win-win situation for both the individual as well as the IRS. You need to sign an agreement though and the advantage is that if you fulfill your payment obligations on time. The IRS will not levy charges and extra interest.

Partial Payment Installment Option

This option is similar to the installment agreement except that the individual need not pay the entire amount due at one go as the review is only once in 2 years. In between, if the financial situation improves, the agreement can be closed.

Offer in Compromise

This is an understanding reached between the individual and IRS, which enables the individual to pay less than what he owes. This is normally not acceptable to IRS, but they agree to it as a last resort, since they know that it is better to get something than nothing at all. They do however try to offer the plans of installed agreement and partial payment before agreeing to this.

You however, have to fulfill certain criteria to qualify for an Offer in Compromise Plan:

• If IRS is not sure about your total liability figures
• If IRS feels that you are in no position to make the due payment.
• If above two constraints are not there, but the individual is able to convince the IRS that the payment of the taxes can create huge issues that would not be fair.

You may need the help of a tax expert to apply for an OIC.

Innocent Spouse Relief
This relief is for those who have been burdened with a tax debt due to the mistake or carelessness of their wife. This is applicable only for those who have filed a joint tax plan. There are conditions that need to be met here also:

• When you filed for joint return, you were unaware of the tax being undeclared.
• You were unaware that your wife had hidden certain items pertaining to the payment of tax.

You need to fill out IRS form 8857 to find out if you qualify for this and the help of a tax expert can also be sought by you.

Debt Consolidation Help

While a loan taken through the debt consolidation route is very useful, it is necessary to be aware of the pros and cons of such an arrangement before venturing into it.

The debt consolidation arrangement works by merging multiple loans into one and involves repayment over a longer tenure. Consequently, the monthly payment is lower and places some cash in the hand of the borrower.

An example is when you have 2 loans, where the monthly payments are $50 each. You are therefore paying $100 per month. Through debt consolidation, the new creditor will take on the loans and give you one bill for about $50, which saves you $50 per month. In this arrangement, you have reduced your monthly payment to pay the amount outstanding over a longer period. If you had continued paying the individual outstanding at the current monthly payment, you would have settled the outstanding sooner.

Debt consolidation offers other options like student loans where multiple student debt can get combined into one and mitigate the hardship faced by the students in making high monthly payments. Inflation and costlier academics compel students to take multiple loans and it can become very difficult for them to repay. Debt consolidation, by its definition makes it easier for the students to repay by reducing the ticket size on the monthly commitments.

Many card members face a similar situation with the accumulation of debt on multiple card accounts. They can also opt for a consolidation debt where the monthly payment is again reduced and the creditor is a single entity. By utilizing the saving resulting out of this into repayment, the member can decrease the total debt against his name and hope to clear the entire debt sooner than later. Care must be taken by the member that he does not continue splurging on his card while this arrangement is in force. It will only make the situation worse.

The above benefits seem good but one has to be aware of the negative aspects of debt consolidation as well. They can send wrong signals to the lenders about the financial strength of the borrower. Other lenders may want strong security collateral before they advance any loan. Of course, this demand depends upon the overall credit rating as well as the loan amount sought by the borrower.

It is important for prospective borrowers to do some study on the various programs available in the market and the benefits of each before signing up. It is equally imperative to be aware of the hidden clauses to avoid getting into a worse soup.

Finally, it is important to recognize that any debt put off only provides temporary relief and the amount has to be settled ultimately.