Are you facing tax debt? Have you ever told yourself, “I’ll just deal with my taxes later,” only to receive a letter from the IRS demanding thousands in back taxes, penalties, and interest? If that sounds familiar, you are not alone. The good news is that you have options.
Today I want to talk about a tax issue I see far too often. It starts when someone files exempt with their employer to avoid having income taxes withheld. That might feel like short-term relief, but when April 15th arrives, the surprise balance due can be overwhelming. And if you are already deep in tax debt and considering bankruptcy, it is critical to understand how your actions today affect your options tomorrow.
Always File Your Tax Returns on Time
Let me be clear. Even if you cannot afford to pay what you owe, you must still file your tax return. Why? Because if you do not file, the IRS eventually will. But when they file a return for you, they do it in a way that almost always overstates what you truly owe. They will not consider all your deductions or credits, and their version of the return will cost you much more.
Here is something even more important. Income tax debt that is more than three years old may be eligible for discharge in bankruptcy, but only if you filed the return yourself. If you never filed it, that debt sticks with you. That one mistake can cost you thousands of dollars. The bottom line is, even if you cannot pay, file your returns.
What Happens If You Are Behind and Considering Bankruptcy?
If you are dealing with tax debt and thinking about bankruptcy, Chapter 13 may be your best option. A Chapter 13 plan lets you repay taxes that are considered priority debt over a three to five-year period. It also stops IRS collection efforts during that time and can discharge some of your older tax debt at the end of the plan.
Chapter 7 bankruptcy works differently. While it can wipe out certain older tax debts, it does not provide a repayment plan for the priority taxes that remain. That means you will still be negotiating with the IRS on your own, which can be intimidating and difficult to navigate.
A Real Client Story
We worked with a client who had not filed her tax returns in several years. When the IRS finally caught up with her, she filed all her past due returns. A few years later, we filed a bankruptcy case on her behalf. Through Chapter 13, we paid off the most recent tax years and discharged over fifteen thousand dollars in older tax debt. That financial relief gave her the breathing room she needed to move forward.
Why Timing Matters
Here is the bottom line. You can either deal with your taxes now or deal with them later, but if you wait too long, you will likely pay more. Not filing your returns or waiting until the IRS files for you can reduce your chances of discharging old taxes in bankruptcy. Acting sooner rather than later puts you in control of your financial future.
You Have Options and We Are Here to Help
Whether you are already facing IRS pressure or just want to get ahead of it, we are here to help. Let’s talk about your situation and build a plan that gives you peace of mind. Visit ValerieGLong.com or call our office to schedule your consultation. Bankruptcy is not the end. It can be the beginning of your financial recovery. You have options, and we are ready to help you explore them.