Every year April rolls around faster than most of us are ready for. If you owe $10,000 or more in back taxes then tax season can be a very gloomy time of year. In a year of a troubling economy and unprecedented lay-offs, a large portion of the population is struggling with finances and a mounting debt. Some choose to hide or ignore the problem which leads to intervention from the IRS and a difficult future raising your credit score and financial status. There are far better options to relieve this heavy financial burden. The two most common practices are Debt consolidation and debt settlement. Both have their own pros and cons, and each can help you get out from under a $10,000 debt to the IRS.
1. Debt consolidation Debt consolidation consists of taking out a new loan at a lower interest rate than the price of your other debts and using these funds to pay them off. The advantage of this is that you will now only pay one consolidated debt at a very manageable interest rate. It does, however, require you to take even more loans on money.
2. Debt settlement Debt settlement is negotiating a settled amount between you and the creditor, that satisfies both parties. Its better for the creditor to receive a portion of the sum, as opposed to nothing at all. Creditors often agree to a figure an amount that is thirty to forty percent lower than the amount owed. Debt settlement, however, does negatively affect your credit ranking. Even though your debt is handled, future creditors will often see that you did not pay the full amount that was initially agreed upon.
These are the most common actions taken but there are many under the radar tactics that can solve your financial situation. If you answer yes to any of these questions use this information to take charge of your finances.
Have you worked through a credit debacle and have your debt forgiven?
Its important to know that if credit card debt or other loans forgiven, when tax time rolls around you will quickly learn that almost any amount of debt that is settled for less than the amount owed is available to taxation. If your lender sends you a form 1099-C, Cancellation of Debt, to show you what to report on your tax return, that sum will be liable for taxation.
Did your income drop so much that you now qualify for some breaks that couldn't work for you last year?
If last year was very difficult, you can qualify for the Earned Income Tax Credit. You must show some income from wages or a job for 2009, and must earn less than a set income limit. Families that had college tuition bills in 2009 can benefit on their tax return this year from certain education credits that are not allowed once you hit certain higher-income level. In fact The American Opportunity Tax Credit , initially called the Hope Credit, offers up to $2,500 for qualified tuition and fees paid for each eligible student in the first four years of college. The American Opportunity Tax Credit can't be used, however, if your modified adjusted gross income hits $90,000 or $180,000 as a joint family income.
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