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SALT LAKE CITY — The Bush tax cuts are expected to end this year. When they do, the additional taxes and related payments are estimated to cost some Americans almost $5,700 per year. Understandably, many are speculating on how the expiry of these cuts will affect the financial standing of the nation and its people.
According to reports by the non-partisan, Washington, D.C.-based Tax Foundation, the residents of Connecticut would be hit harder than residents in any other state. When the tax cuts expire, residents of Connecticut will be taxed to the tune of an additional $5,783 per year. Residents of the next state in line, New York, are supposed to get hit by $5,542 on average per year. On the other hand, Mississippi residents would be least impacted. The additional tax burden for them is supposed to be only $1,310 on average per year.
This is worrisome not only for the national economy, but for the finances of the average American household as well.
Still, taxpayers in nearly 29 of the 50 states are supposed to face a tax increase of at least $2,000 per taxpayer per year.
Will McBride, Chief Economist at the Tax Foundation said, "It's pretty dramatic. This is the biggest tax increase that would happen since World War II. I can't think of anyone who's really seriously thinking we should go through this. It would almost certainly result in another recession."
This is worrisome not only for the national economy, but for the finances of the average American household as well. Median household income decreased sharply after 2008, and although it's improving, it's still far below the levels of the year 2000. Combining the aftereffects of the recession with the end of the tax cuts likely results in misery for the average American household, particularly where tax debt is concerned.
Pay your debt off as quickly as possible
If you owe tax debt, it is important for you to try and pay that debt off as soon as possible.
Getting your tax debt settled is not as easy as getting the IRS to agree to other tax debt relief options. For example, the IRS may readily agree to a change in when you pay, but may not agree to reduce the total tax amount owed. Just like debt solutions are available with regards to the other simple forms of debts, there are various tax debt relief options available too.
If you owe tax debt, it is important for you to try and pay that debt off as soon as possible.
So, rather than simply applying for the tax debt settlement option, it is better to try out other tax debt solutions too, particularly before the Bush tax cuts end.
Don’t fall into the debt-settlement trap
There are various tax debt settlement companies that claim to be able to help you settle your tax debt. However, before believing them, it is better to know how the IRS handles tax debt settlement offers, also known as offers in compromise.
The IRS itself says you should think twice before opting to take the help of tax debt settlement firm. The IRS considers only a small percentage of all total settlement applications, and most of the time, the IRS rejects the ones they do consider. Among the few situations in which the IRS does agree to settle the tax amount are when a debtor is near death, without options to make money, or has no assets which the IRS may be able to confiscate in order to recover the tax debt owed.
Therefore, it is important to be aware of some other tax debt relief options.
1. Streamlined installment agreement
With this agreement, the debtor is not required to fill out Form 433-F, the form which the IRS requires to analyze the financial condition of their debtors. If you pay down the IRS tax debt through this option, the amount paid upfront should not exceed $25,000. However, those who choose this option are required to pay off the amount owed within 60 months.
2. Guaranteed installment agreement
The guaranteed installment agreement is one of the most suitable tax debt solutions if the amount owed is less than $10,000. However, in order to qualify for this tax debt pay off option, the IRS requires 1) filing future tax returns on time, and 2) paying future taxes on time. Moreover, the IRS will not allow use of this option if it has been used for previous tax debts within the last five years.
The guaranteed installment agreement is one of the most suitable tax debt solutions if the amount owed is less than $10,000.
3. Partial payment installment agreement
The partial payment agreement the most suitable tax debt solution if making the minimum payments in the guaranteed installment option is impossible. Under this option, debtors have the ability to make a monthly payment based on how much they can afford. However, even if a debtor qualifies for this payment agreement, the IRS will reevaluate the terms of the agreement every two years. They want to make sure that those who choose this option really cannot afford normal payments.
If you cannot settle your tax debt through an offer in compromise, these are some of your options. With the end of the Bush tax cuts, and with new rules in place, make sure there are no mistakes filing your taxes.
Samuel Baker is a guest writer for various finance related communities and a member of the Debt Consolidation Care Community. He is well equipped to answer questions on debt, taxes, savings, and the economy.
