Can I Resolve My State Tax Debt? What You Need to Know
Can I Actually Resolve My State Tax Debt?
Filing your taxes when you expect a hefty refund is a great feeling. What are you going to do with that money you’ll get back?
On the flip side, filing your taxes when you owe money to the state – especially over a period of several years – can be an incredibly stressful and complicated process. Then the question is, can you resolve your tax debt and lighten that financial load?
Getting your state tax debt resolved is in your best financial interest, but you want to make sure the process is taken care of correctly.
In this guide, we’ll give you the information you need to know about resolving your state tax debt, and how to avoid companies that promise to wipe out your debt without actually providing you a service.
First Thing: How To Know If You Owe Taxes To The State
Before trying to figure out how to resolve your debt you need to determine if (and how much) you owe.
The easiest and least expensive way to find out if you owe taxes to the state is to contact the taxing authority in your state and ask. You want to find out not only if you owe back taxes, but also what the fees are on what you owe and for what years you owe the debt.
If you choose to hire a tax debt relief service or tax attorney, they usually contact your state taxing body on your behalf and get a full accounting of how much money you owe.
What To Do If You Owe Taxes To The State
If you owe back taxes to the state, it’s important to get your debt resolved as quickly as possible.
The first step is to make sure that you’ve filed your taxes for every year, even if you don’t owe money for that year. Once you’ve gotten all your taxes filed, contact your state taxing body and get a full accounting of the amount of money you owe.
Pay Off Your Tax Debt
If you can pay the entire balance of your tax debt up front, do so as soon as you get a full balance to avoid any further fees. Even if you may think the penalties are small now, they can accrue very quickly and add large chunks of money onto your total bill.
Make A Settlement Offer
Many states offer programs for indebted taxpayers, similar to those for the federal IRS. These programs range from accepting a portion of the money you owe to setting up installment agreements for the full balance of your debt.
By contacting your state’s tax service, you can directly negotiate with them and find out what programs, if any, you may qualify for.
Ask For A Reduction
If you plan to attempt getting a reduction in the debts you owe, be prepared to show documentation on how paying the full balance would be a major financial hardship for you or your family.
Do I Need A Tax Debt Relief Service Or A Tax Attorney?
While it isn’t absolutely necessary that you hire a tax debt relief service or tax attorney to help you take care of your tax debt, many taxpayers find that hiring an outside party gives them peace of mind.
Expertise To Help You Resolve Your Tax Issues
Hiring a tax debt relief service or tax attorney means you get an experienced, knowledgeable person or team of people to help you through getting your tax debt settled.
Get Assistance Through The Entire Process
Instead of being the one to gather and prepare paperwork, field phone calls, and decide whether or not a proposed plan is in your best interest, you have someone on your side who works with you throughout the whole process. This allows you to keep your mind of the other important things in your life, such as work, your family, and your hobbies.
Gain Peace Of Mind
Professionals who deal with your state’s taxing entities on a frequent basis also can tell you what to expect, so you don’t go into your attempts at settling your tax debt with unrealistic expectations.
How to Prevent Owing State Tax Debt In The Future
Getting your state tax debt taken care of is always a great idea. You no longer run the risk of adding extra fees, and you can begin repairing your credit score if it took a hit.
But just paying it once only to get into the same predicament again isn’t going to do you any good. You need to plan for the future in an effort to avoid any further state tax debt.
Here are some tips for preventing owing state taxes in the future:
1. Check Your Withholdings
If your withholdings are too high for the number of dependents, you will be required to pay back any extra money you received in your paychecks throughout the year.
To avoid this problem, evaluate your withholdings at the beginning of each year, preferably with the assistance of your accountant or other tax professional.
2. Work With A Bookkeeper
Owning a business means you have much more complicated tax returns than do individuals.
You have to keep careful track of your income, the sales tax you owe, your employees’ wages, and any business deductions you may be able to take.
Rather than adding all that work onto your plate, hiring a qualified, experienced bookkeeper to help you manage all the ins and outs of your business finances can help you stay on top of things that need to be reported come tax time.
3. Get An Accountant
It may be more inexpensive to prepare your own taxes, but with recent changes in tax law, preparing taxes has become more complicated.
Working with a certified accountant to prepare your taxes each year ensures you get an accurate tax return and correct information on how much - if any - you owe.
4. Start Early
Tax time can be busy for everyone, not just accountants and tax preparers.
Leaving your tax return preparation to the last minute leaves you more likely to forgetting to file, filing late, or filing and not paying.
Rather than waiting, get started gathering the important documents as soon as the calendar switches to the new year, and meet with your accountant as soon after you receive your W-2 or 1099 as possible.
5. Set Some Aside Each Month
If you anticipate you may owe money at the end of the year, especially if you’re self-employed, setting aside some money in a separate savings account each month can help soften the blow come tax time.
Even if you aren’t sure if you’re likely to owe money at the end of the year, stashing some money in a special “tax season” fund may be prudent. And if it turns out you don’t actually owe anything, then you’ve got a little extra “found” money come April!
Are State Tax Debt Relief Companies A Scam?
Spend any amount of time watching broadcast television and you’re sure to see commercials promising tax debt relief.
These commercials make big promises of quick resolutions, paying pennies on the dollar, and never having a settlement offer rejected. But these claims are slightly inflated at best or dangerous lies at worst.
Not all tax debt relief companies are scams, however. There are a variety of reputable firms that can help you solve your unpaid state taxes, clearing your credit history and relieving your worry.
What To Look For In A Tax Relief Company
When looking for a reputable tax relief company, here are some things to keep in mind:
Accreditations And A Good Reputation
A tax relief company worth its salt will belong to national societies and be accredited by official agencies. At the very minimum, you want to find a firm that’s accredited by the National Association of Enrolled Agents (NAEA), the National Association of Tax Professionals (NATP), and the Better Business Bureau.
Checking into the company’s reviews and seeing if they have any complaints filed against them can help you get a feel for how their services are viewed among their clients.
Certified Tax Professionals
While it’s unrealistic to expect that an entire firm is going to be staffed by tax attorneys and CPAs, especially for a larger company, having at least a few licensed and enrolled agents, CPAs, and tax attorneys are the signs of a company that adheres to high professional standards.
Free Consultations
A company that’s confident in the results it provides its clients is willing to take the risk of giving you a free consultation to earn your business.
During this consultation, you should be asked about your situation, including any unfiled taxes and unpaid taxes. Most firms also will contact your state taxing agency on your behalf to get the full picture of your tax problems, using the information collected to make a recommendation to you.
They Keep You In The Loop
You should always know where your tax debt relief case stands. By keeping in regular contact with you, your representative at your tax debt relief firm should be keeping you in the loop on your case’s progress.
Money-Back Guarantee
A firm that is confident in its ability to properly perform tax relief services will offer a refund or money-back guarantee if you’re dissatisfied with its service.
These refunds often must be requested within a short period after receiving a settlement from the state, so make sure you carefully read your chosen firm’s policies before signing.
How To Know Your State Tax Relief Company Is Scammy
Here are some signs that you may not be working with a company that’s completely on the up-and-up:
They Want Payment Without Performing Services
A scammy tax debt relief company is more interested in getting your money than they are in helping you resolve your debt.
Asking for a hefty up-front payment before they even investigate your case may be a sign they aren’t working in your best interest.
No Money-Back Guarantee
Not offering a refund or money-back guarantee if you’re unhappy with the service provided is a sign that the company may want your money more than they want to do a good job.
Accepting Any Cases
If you owe only a small amount to the state or your case could easily be taken care of with a little paperwork, a reputable company will tell you that you’re better off handling things on your own to save you money. But a scammy company will gladly take your retainer fee and make quick work of a small matter.
Pushy
While there is absolutely some level of urgency to getting your state tax debt resolved, being pressured by to sign up or accept a settlement is not something a high-quality tax relief company will stand by.
Resolve Your State Tax Debt With The Credit Review's Recommendations
You want to get your state tax debt resolved, but you want it to be done right. Finding a company that’s affordable and effective isn’t always easy.
Here at The Credit Review, we help you find the highest-rated tax relief firms and other financial services companies to meet your needs.
Learn more about your tax relief options here.
Can I settle state tax debt?
Yes. An Offer in Compromise allows you to settle your tax debt for less than what you owe under certain circumstances (ie. you can't pay the full amount or paying would cause you financial hardship).
What are my options if I owe taxes to the state?
When it comes to resolving back taxes, you have several options that include:
- Pay off your tax debt
- Make a settlement offer
- Ask for a debt reduction
About The Author
Edited by:
Bryan Huynh
•
Product Tester & Writer
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