Tax Debt

By: EconomyWatch Content   Date: 23 November 2009

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Tax debt is the amount of taxes payable to a government agency for a particular period. The improper calculation of the tax payable on one’s income results in unresolved tax debt, which needs to be paid off in a lump sum or monthly installments. 

Payment and Settlement of Tax Debt

For many people, the payment of tax debt is not a difficult task, since their employers routinely calculate and deduct the tax from their monthly paychecks and forward the same to the requisite tax authorities. However, in case of self employed or business people, the management of tax debt can be difficult. They need to calculate and pay off the right amount of tax debt in a timely manner to avoid any kind of punitive action.

In some countries, calculation and payment of tax debt is very easy. A central tax agency issues the tax return forms, which list out all the norms and applicable tax rates. This makes it easier for the taxpayer to calculate the amount of taxes to be paid and crosscheck with the amount already paid. In case a taxpayer has paid more than the due amount, the tax authorities refund the extra amount paid. However, if the tax paid is less than the amount due, the taxpayer has to resolve the outstanding tax debt.

Tax Debts can be settled by on one’s own or with the help of an expert tax professional. In case the due amount is not very high, an individual should try to settle it on his own, but only after rechecking the tax amounts already paid. Crosschecking of the original tax returns may reveal certain deductions that one may have overlooked and should therefore be followed by the filing of amended tax returns. 

Tax Debt Strategies

Several options are available for settling one’s tax debt. One can:

  • Agree to a monthly payment plan for settling the tax debt
  • Take on a long term payment plan, which calls for the payment of the debt at a reduced amount.
  • Agree to an Offer in Compromise program that allows a person to settle one’s debts for a lesser amount.
  • Request the tax authorities to allow a waiver of the tax debt for a certain period.
  • File for bankruptcy and settle the debt according to the bankruptcy rules.

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