With every passing year, as April 15 looms, taxpayers increasingly face the challenge of addressing substantial tax debt. Such debt frequently includes delinquencies in both state and federal income tax, necessitating careful strategic navigation on the part of the taxpayer. Some may even find themselves dealing with four different tax agencies, due to outstanding income and employment taxes.
The current write-up discusses practical ways of managing tax debts owed to multiple agencies, and highlighting which debts to prioritize. Please keep in mind that the strategies suggested may need tweaking in certain circumstances, as every individual’s tax situation varies.[Read More]
-
Give Precedence to Smaller Tax Bills Over Larger Ones
A commonly advised approach, the “snowball method”, involves addressing the smaller tax bills first. These are bills that can potentially be paid off within a six-month timeframe.
-
Pay Employment Taxes Before Income Taxes
Tax departments generally place a high priority on employment or payroll taxes, as taxpayers in these situations are typically holding money that has been withheld from employees for the purpose of tax payment.
-
Settle State Taxes Before Federal Taxes
In most cases, state tax bills are less than their corresponding federal taxes. Therefore, it is generally advised to pay them off first, allowing the taxpayer to concentrate on settling the larger tax bills thereafter.
-
Address Newer Taxes First
It is advised that individuals with tax bills from recent years address these first, to ensure they do not face the same predicament in future years.
-
Prioritize Tax Bills Assigned To Special Collection Agents
Large tax bills or bills requiring special attention will typically be assigned to special collection specialists. These agents are generally better equipped to handle complex tax situations and have the ability to retrieve detailed financial information, a necessary part of sorting out these tricky cases.
The most important advice, however, is not to ignore a tax bill you cannot pay within a reasonable timeframe. Consulting a tax professional can often prove beneficial for inside advice and strategies.
The views and advice put forth in this article stem from an experienced tax attorney, Steven Chung, based in Los Angeles, California. Mr. Chung specializes in tax planning and dispute resolution. He can be contacted at stevenchungatl@gmail.com or through Twitter @stevenchung, and LinkedIn LinkedIn.