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What is Tax Debt?
Underpaying or underreporting taxes to the Internal Revenue Service or IRS can lead to tax debt. Forgetting to file or pay taxes incurs tax debt. This can cause legal problems for you. There are different ways in which tax debt can be found. There are different ways to correct this issue, including filing, correction in filing, etc.
Failing to pay tax debt also means you will have to pay a penalty and failure to pay this leads to an increase in the penalty. The amount keeps building up, especially when you have no idea what went wrong with your taxes.
Tax debts are bad for your credit history and reflect in your credit score. It can cause problems for you in case you require financial assistance from the banks because you will be denied.
It is not easy to understand taxes, especially when the rules and regulations of the IRS are ever-evolving. At Financial Sector, we have a team of practiced employees who have been dealing with tax filings and all issues related to it, for a long time. We will assist you and advise you about your taxes to ensure that you don’t incur any tax debt. However, if you have already incurred tax debt, relax; we have your back. We have virtual tools and experts to help you fix this problem and clear your tax debt.
Get in touch with one of our experts to learn how we can guide you on the tax debt.
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What are the advantages of Debt?
It is imperative to learn about two terms ‘Good Debt’ and ‘Bad Debt’ to know about the importance of debt. How much debt the company or individual can afford to take depends upon its/his financial standing or the difference in asset and liability. A debt that can be repaid without a default is a ‘Good Debt’. A company having a large amount of debt may be unable to fulfill interest payments if its sales fall. It will, therefore, be putting the business in danger of insolvency. It may eventually be a ‘Bad Debt’. On the opposite side, a company that does not make use of debt may miss opportunities for business expansion.
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How tax debt increases with time
Unpaid taxes always attract penalties. The IRS usually charges a 0.5% penalty on the total tax debt amount for failure to pay. At most, the IRS can charge a 25% penalty on the total tax debt amount. Each month, the IRS charges not only a penalty on a tax debt but also interest on the total tax debt. As the total tax debt increases each month due to penalties and interest, over time, it can grow into a significant amount.
When you forget to pay or file your taxes, there is a mistake on your taxes, or the IRS wants to change your taxes, and the IRS says you owe money as a result, you’ve incurred tax debt.
An offer in compromise allows you to settle your tax debt for less than the full amount you owe. It may be a legitimate option if you can’t pay your full tax liability, or doing so creates a financial hardship.