Understanding Common Causes of Tax Debt Issues
Dealing with tax debt can be a big challenge, and it’s something many people face. In this article, we’ll explore why tax debt happens and what you can do to avoid it.
Not Filing Tax Returns
One of the main reasons people end up with tax debt is because they don’t file their tax returns. When you don’t file, you don’t know how much you owe, and it’s easy to forget that you owe the IRS money. Sometimes, the IRS might even file a return for you, but it may not include deductions you’re entitled to. If you haven’t filed your returns for many years, you may end up with a significant amount of overdue taxes, along with added penalties and interest. Before considering any payment plans or settlements, the IRS usually requires you to file all overdue tax returns. Also read about IRS Tax Help Florida
Missing Estimated Tax Payments
For those who are self-employed or have irregular income, it’s common to miss making estimated tax payments. This can happen because you’re responsible for paying your own taxes. If you forget to pay or use the money for something else, you’ll end up with a significant tax bill when you file your return. This can also lead to underpayment penalties and interest on the amount owed.
Changes to Your Tax Return
Sometimes, the IRS makes changes to your tax return based on the information they receive from tax forms like W-2s, or during an IRS tax audit. If these changes result in a higher tax liability, it can quickly become a major problem. The IRS usually reviews your last three years of tax returns, but in certain cases, they can go back up to six years. Multiple years of audits can lead to a substantial increase in the amount you owe.
Unexpected Financial Hardships
Life can throw unexpected financial challenges like divorce, serious illness, disability, job loss, or other money problems. When facing these difficulties, you might feel compelled to use the money you set aside for taxes to pay off other debts or cover essential expenses. The good news is that some tax resolution options offer flexibility for individuals experiencing financial hardship. Before considering more extreme measures like bankruptcy or other debt management options, it’s advisable to consult with a tax expert to determine the best course of action.
In conclusion, understanding the common causes of tax debt is the first step in avoiding or resolving this issue. By being aware of these reasons, individuals can take proactive steps to manage their tax obligations effectively. Seeking assistance from tax professionals and exploring available resolution options can provide a clear path toward resolving tax debt problems and achieving financial stability.