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Why do so Many People Fall Behind on Their Taxes?

There are very few sure things in life. Taxes cannot be avoided. Despite the definitive, many people still find themselves owing the government thousands of dollars. They might go for years without paying a single, tax dollar. Penalties and late charges add up into astronomical figures. It’s only natural to ask why people fall behind on their taxes. Take an in-depth look at society and its relationship to taxes so that you have a better understanding.

Lack of Funds

People run into tax problems when they don’t have the funds to cover the amount. They might feel shame or frustration. Paying for everyday basics, such as groceries, may be the biggest concern. The taxes are put on the back burner until better days arrive.

If you’re having a cash-flow problem, speaking directly to the IRS or Internal Revenue Service is your best course of action. They can create a payback schedule that works with your budget. Paying no taxes at all will only compound the problem.

Forgetting to File

Although it may seem implausible, some people do forget to file their taxes. These individuals might work abroad or at charitable institutions. They don’t intend to skip one or two years of tax payments. The time frame just got away from them.

Forgetting to file your taxes isn’t an excuse, however. The government will collect the funds at some point. It’s always a better idea to pay the taxes as soon as they’re recalled to memory.

Failing to File

It’s possible that some adults don’t know if they should file taxes in the first place. Owing taxes can be a confusing situation. Your job probably withholds a certain amount from each paycheck. Thinking that the taxes are covered and no filing is necessary can happen.

Most full-time workers must file their taxes. It’s a federal law that’s upheld in a court of law.

Dealing with Extenuating Circumstances

People fall behind on their taxes because of a few, common situations, such as:

• Death in the family
• Divorce
• Unemployment
• Illness

These extreme circumstances make it difficult for taxpayers to remember the filing date or to follow the forms’ instructions. They may not be physically able to complete the forms either. Ideally, the taxpayer should seek out professional help so that the funds are covered as necessary. At that point, they can focus on their extenuating circumstances.

Being a Cosigner

A specific instance where a taxpayer has trouble paying their owed taxes is when they’re assigned as a cosigner. You may have cosigned a loan with a loved one. The family member can’t pay back the loan so it’s now your burden to bear. All of your funds, as a result, are funneled to this loan.
If you owe taxes, there’s no money to allocate toward them. Your paycheck might be under garnishment too.

Becoming Too Busy

Falling behind on your taxes may be a case of a disorganized lifestyle. You don’t have the time to fill out the forms or figure out the credits. Throwing up your hands in frustration and scrapping the entire process is an excuse shared among many people. These adults must change their perception of taxes and pay them as needed. They’ll only save themselves from frustration in the end.

Mistaking Credits on Tax Forms

There are hundreds of credits and exceptions on a standard, tax form. Some people might be overwhelmed at the selection, and they end up choosing a credit that they don’t qualify for in the first place. These taxpayers end up filing the forms, but they end up owing more taxes in the process.

Mistakes on tax forms can cost taxpayers dearly. Professional help might be the safer route to take.

Misunderstanding Estimated Tax Payments

If you’re a self-employed person or run a business, paying estimated tax payments is part of your financial world. Every quarter, you send a check payment to the government to cover your taxes. However, some taxpayers don’t understand their estimated payments. They may underpay them or forget altogether. The government will request the funds if they aren’t paid by the due dates. Business owners may want to consult their accountants to verify which payments are currently due.

Confusing Withholding Structure on Paychecks

The simplest way to pay your taxes through the year is by withholding them in a paycheck. You never see the funds. They’re simply tucked away for the government’s use. Be sure that you’re withholding enough funds to cover your taxes. Filing a form with your employer can make the process a simple one. You can withhold any amount that you desire.

Working With Tax Group Center in the Event You Fall Behind on your Taxes

If you haven’t paid taxes or received a bill in the mail, you need to deal with the situation as quickly as possible. Tax bills won’t vanish overnight. You must pay part or all of the taxes owed. They must be paid in a reasonable amount of time.

Tax help is right around the corner. Tax Group Center offers a mixture of both tax preparers and lawyers. We understand the legalities behind unpaid taxes. Our tax professionals work directly with the IRS to defend your position. We also protect your rights so that the repayment agreement is within your income bracket.

Your taxes pay for core services in your neighborhood, from paving roads to supporting the fire department. Consider your taxes as funds toward a better tomorrow. Paying them helps everyone with a better life than before.

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How to Resolve a Tax Debt When You Can’t Pay

Every year, Americans must submit an income tax return along with any taxes that they may owe. However, there may come a time when you can’t afford to pay a balance owed for any variety of reasons. For instance, a sudden job loss or an unexpected medical bill could make it impossible to pay the IRS on time. Fortunately, there are ways to resolve the situation in a manner acceptable to the government.


Ask for an Extension to File

The first step that you can take is to ask for an extension to file your taxes. While this doesn’t give you an extension to pay taxes owed, the penalty for failure to file is much larger than failing to pay your taxes. If you have paid at least 90 percent of your estimated taxes, you may not be subject to any additional penalty. The same is generally true true if you owe less than $1,000. This extension is available to all taxpayers with no questions asked, and it will not increase your odds of being audited.

Ask for an Installment Agreement

If you still don’t have enough money to pay your taxes by October, it may be possible to ask for an installment agreement. The agreement gives you another 60 to 120 days to pay whatever balance that you owe to the government. However, if you fail to pay the balance in full, the government could take steps to garnish your wages or put a lien on assets.



Make an Offer In Compromise (OIC)

An OIC is your way of telling the government that you have no way to pay your past due tax balance in full. Like any other creditor, the government would rather have some of its money rather than nothing at all. Therefore, if you can show that you legitimately don’t have assets to sell or access to credit to make payments, the IRS will take less than what is owed.

The extent to which the agency will forgive that debt depends on the specific circumstances in your case. It is worth noting that you should make a serious offer that you intend to follow through with in good faith. The IRS is likely to reject a frivolous offer or one that doesn’t adequately reflect your ability to pay.



Pay With a Credit Card

The IRS does allow you to pay taxes with a credit card. This is done through third-party payment portals that you can access from the IRS website. There are service fees that you will need to pay on top of the balance owed. However, these fees can be deducted from your tax return. It is important to note that tax debt is rarely discharged in bankruptcy court, and putting a tax payment on a credit card won’t change that.



Pay Whatever You Can

If you can’t pay the full balance on time, you can choose to make a partial payment when filing your return. While interest will still accrue on the outstanding balance, which means that you want to pay the rest of what you owe as soon as possible. However, making a payment or payments in good faith increases the odds that the government will hold off on levying harsher penalties.


Consult With a Tax Expert

A tax professional may be able to help you decide the best course of action if you are unable to pay your taxes for any reason. He or she could help you craft an OIC that the government is likely to accept. If your adviser is an enrolled agent, he or she could also negotiate on your behalf with the IRS to help reduce the amount that you owe. Negotiating with the federal tax authority could also reduce the odds of a lien or wage garnishment. In some cases, it is possible to have interest or other fees waived or reduced to make it easier to pay an outstanding balance.

Ideally, you will plan to have enough money withheld throughout the year to avoid being in debt to the IRS come tax time. While owing the government money can be a stressful situation, there are ways to settle your debt in a timely and convenient manner. Understanding those options can prevent your wages from being garnished or assets seized by the IRS.

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How Student Debt Affects Your Taxes

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How Student Debt Affects Your Taxes

Americans owe over $1.3 trillion in student debt, a number that continues to increase as the cost of education rises. Nearly 40% of adults under 30 have student loan debt with two-thirds of college seniors taking out a loan to pay for their education, according to the Pew Research Center. While the median amount of debt among all borrowers is $17,000, one-quarter of student loan borrowers owe at least $43,000. 

The cost of student debt often makes headlines, but the impact of student debt on taxes is often overlooked. Student loan debt can impact taxes in many ways, both positive and negative. 

Student Debt and Tax Deductions

Student loans are expensive and can be difficult to manage but there may be tax benefits that help offset the cost. Student loan borrowers can deduct the student loan interest paid every year through the student loan interest deduction. This reduces the borrower’s taxable income by up to $2,500 for borrowers whose modified adjusted gross income is less than $65,000 or by a lesser amount for higher income levels. There is an IRS tool borrowers can use to check if they are eligible to claim the deduction. 

This deduction can result in $625 back for borrowers in the 25% tax bracket. It’s important to remember that only the borrower who took out the loan can get the deduction, whether it’s the student or the parent, but neither qualifies for the deduction if the student is listed as a dependent on the parent’s return. 

This is the only tax deduction applicable to student loans but there are tax credits available for students in college such as the American Opportunity Credit which is worth up to $2,500 per year for students attending at least half-time. The Lifetime Learning Credit is another credit worth up to $2,000 per year for books, supplies, fees, and tuition. These credits are only available to students still in school. 

Student Loan Tax Refund Offset

When a federal student loan falls into default, the Department of Education can refer the account for collection to the Department of Treasury. This is done through a tax refund offset of the borrower’s federal and sometimes even state return. The Treasury can withhold the entire refund amount and apply it toward the outstanding student debt. 

Under the law, the IRS must provide a proposed offset and the chance to review loan records. This notice is sent by mail. It is possible to prevent or overturn a student offset, however. Possible solutions may include: 

  • Consolidating the loan. Borrowers who are eligible for consolidation can bundle all student loans into a single loan, usually with a new federal lender. Once consolidation is complete, the student loan is no longer in default and there is no longer a risk of an offset. Borrowers may also be able to qualify for payment plans during consolidation such as the Income-Based Repayment Plan (IBR).
  • Rehabilitating the loan. It may be possible to reach an agreement with the lender to make the payment plan affordable and bring the loan current. Loan rehabilitation usually takes 9 months with on-time payments.
  • Repay the defaulted loan in full.


For most people, a tax refund offset can be a significant financial burden. Even after a refund has been offset, it may be possible to get it back with a student loan tax offset hardship refund request. There are many circumstances under which students can qualify for a hardship refund of an offset such as: 

  • Proof of eviction or foreclosure
  • Utility disconnection notice
  • Proof of exhausted unemployment benefits
  • Filed for bankruptcy
  • Totally and permanently disabled

 

Student Loan Forgiveness and Tax Consequences 
Federal student loans come with a benefit not available with private loans: the option for student loan forgiveness. Under some circumstances, federal student loan borrowers may have their outstanding balance forgiven. This option is only available under certain circumstances, however. There are multiple student loan forgiveness programs available such as: 

  • Teacher loan forgiveness. This program is available for borrowers who meet specific teaching requirements.
  • Public service loan forgiveness. This program is available for borrowers who get a job at a nonprofit or government organization, repay the loan based on their income, and maintain their employment for 10 years.
  • Student loan forgiveness for nurses through state and federal programs such as the NURSE Corps program.
  • Income-Based Repayment (IBR) forgiveness. The IBR plan caps payments at 10-15% of the borrower’s discretionary income but the balance is forgiven after 20-25 years of consistent payments.

While loan forgiveness may make sense, there may be tax consequences. The amount of student debt that is forgiven can be transformed into tax debt, a substantial hidden cost to a seemingly clear-cut decision. 

This tax debt usually comes into play with the Income-Driven Repayment plan, which comes with forgiveness of the remaining balance after 20 to 25 years of repayment. Under current IRS rules, any loans forgiven under this program is considered taxable income. If $40,000 is forgiven, for example, the borrower may be left with a $10,000 or more tax bill along with state income taxes. This can force the borrower into a new payment plan with the IRS to pay down the tax debt. 

What Can Borrowers Do About Student Debt? 
According to the Federal Reserve, the average student loan payment is $393 although some borrowers pay much more. Student loan debt can be a substantial burden and make it difficult to qualify for a mortgage or even pay for daily living expenses. Borrowers have many options for combating the financial burden of student debt. 

A financial advisor specializing in student loan debt is one solution to help borrowers better understand their situation and assess their options, including student loan forgiveness, loan consolidation, and repayment plans. Along with repayment plans like an Income-Based Repayment plan, there are strategies that can help pay off student loans faster such as making extra loan payments or paying more than the minimum payment. Refinancing can also be a good strategy to reduce the loan’s interest rate. A refinance pays off the existing loan and replaces it with a new loan at a lower interest rate. It’s even possible to refinance a federal loan into a private loan, although it’s still a good idea to consult with a financial advisor as there may be consequences to this decision such as the loss of repayment plan and forbearance options.

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Which is better for your wallet: Renting or Home-owning?

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Making smart choices about your living situation will have a big impact over the long term on your finances. A lot of consumers aren’t sure whether it’s best for them to rent or buy a home in their particular situations. It’s hard to provide a simple rule for which is preferable.

While you build equity in your home when you pay off a mortgage, you also have to handle a lot of additional expenses yourself like property taxes and home repairs. At the same time, you do get to take advantage of some tax write-offs when you’re paying off a mortgage.

For a lot of consumers, whether or not they should buy a home depends on their age and financial situation. Generally speaking, younger consumers are better off renting while older consumers probably want to take advantage of the financial incentives to own a home.

Renting when you’re young
Those who are able to be approved for a mortgage loan need to have relatively good credit and also have built up some savings in order to be able to put a down payment on a home. These things are sometimes not financially feasible for younger consumers. Younger consumers tend to have lower incomes and haven’t been working long enough to acquire as much in savings as older consumers.

Another reason why home ownership is sometimes not possible or the best idea for younger consumers is because younger consumers are more likely to move around. Younger consumers are in many cases still establishing their careers. They are more likely to have to relocate. Relocating can be a big problem once you’ve bought a home because it generally requires you to sell your home.

At the same time, there are quite a few disadvantages to renting that younger consumers who are unable to buy a home just have to deal with. Rent money is lost every month and doesn’t help to build up equity in a property. While there are financial disadvantages to renting, renters also have less responsibility over their properties. They can simply call up the landlord to handle repair needs when necessary and don’t have to foot the bill. For the moment, renting is a less expensive living situation that doesn’t involve as much responsibility.

Enjoying the benefits of homeownership
Once you’re in stable condition financially and you have some savings built up, it’s time to start thinking about home ownership. Before you can even think about it, however, you’re going to have to make sure that your credit score is high enough that you can be approved for a mortgage loan.

Before you buy a home, you need to be actually certain that your income level is not going to face any sudden shocks that will decrease it. You need to be able to count on income coming in well into the future so that you know that you’ll be able to make your mortgage payments. Defaulting on a home loan is a big problems and can devastate your credit for years to come.

When you buy a home, you’ll be able to take advantage that each payment you make will increase your equity in your home. Once you stop making payments, you own a house and you’ll be able to sell it in order to get all the money you put into your house back.

At the same time, you’ll also be able to take advantage of numerous tax benefits as a homeowner. When you’re making payments on a mortgage loan, you get to claim a tax credit for all of the interest you pay on your mortgage loan. There are a few other tax benefits and tax deductions that go along with home ownership. You get to write off the points you pay on your mortgage loan as well as the cost of all the property taxes you have to pay in order to own your home. The other big tax deduction you can claim when you are a homeowner is a deduction for any costs you have had to incur in order to pay for the insurance on your mortgage.

The tax benefits of owning a home are also particularly appealing and applicable to older consumers because older consumers tend to have higher incomes and therefore higher tax liabilities. Younger consumers might not benefit as much from home ownership tax credits because they might not itemize deductions or they may be in lower tax brackets and therefore have to pay a smaller percentage of their income as taxes.

Deciding for yourself
In the end, you must make your own decision on whether you want to rent or buy. If you can afford to buy, it’s generally good to do so if you know you’re not going to be relocating and you know your income is secure.

However, you need to carefully evaluate your options and make sure that you can get a decent mortgage loan with a manageable interest rate before you commit to home ownership.