The Major Components of a Healthy Financial Plan: Tax Reduction Plan

Anybody who has had to deal with the IRS knows that the experience is not a joyful one.  Dealing with the IRS when you have not paid your taxes on time is a long and painful process.  Those who owe the IRS can tell you that they sometimes feel hopeless and that they will never get out.  Thankfully you can get out, but not overnight as it takes hard work and big payments to get the IRS out of your life.

As mentioned in the Debt Reduction post, we recommend getting out of debt by using the Debt Snowball method of listing your debts smallest to largest and start attacking with focused intensity on the smallest debt working your way up.  However, with IRS, state, or local tax debt, we automatically move that debt to the top of the snowball.  The reason we move it to the top is that IRS debt is not bankrupt-able and they do not have to sue in order to garnish wages or attach liens on property.  In addition the interest and penalties on past due taxes are very steep and keep accruing every month.  Therefore it is a very hard hole to dig yourself out of and putting it as the top priority on your debt snowball will free you to get yourself out of other debt. 

If you have not filed because you know you are going to owe taxes you need to see a CPA immediately!  Not paying is not a criminal offense, but not filing however is a different story and can be punishable with jail time.  To those of you who are currently doing a tax reduction plan, make sure you are withholding enough from your pay so you will not have overdue taxes going forward.  Owing on back taxes is not pretty but by having a plan you can get the noose around your neck off and start being able to breathe again!

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