Why You Should Consider Using Your Tax Refund to Pay Off Debts

Written by adminMay 3, 2018
Saving

We understand the temptation. From the moment you send in your taxes, your mind goes straight into thinking about how you want to spend that money.

Did you want to put that down payment on a new car? Are you thinking it’s time to upgrade your wardrobe? Are you going to sock it away for that family vacation?

Hey, you won’t receive any judgment from us! We completely get it. Yet, we’re here to advise you that maybe there is a better option for that money than buying more stuff, which is to put it towards your debt.

It’s certainly not the sexiest of options, or the most fun, but it can certainly save you a lot of heartache in the long run.

Here are three excellent reasons why you should put your tax refund towards your debt:

1) It Will Show You’re Serious About Your Debt

If you have debt, then you know that the quicker you pay it off, the less you’ll pay on it over time. The longer you have the debt, the more interest you’ll have to pay on it. The difference between paying it off early or not can be thousands of dollars in additional interest added. That means you’ll have more money in the long run.

If you have a lot of debt, it doesn’t make sense blowing your refund on a large vacation or adding to your debt by getting a new vehicle. Not to mention, paying a large chunk of it down can only help your credit score. Putting your refund towards your debt shows you’re becoming financially responsible.

2) Savings Might Get Spent

Putting money into your savings or rainy-day fund is always a good idea. You never want to go without an emergency fund stashed away. If you have no emergency savings, then it’s a decent option, but what you put into savings might be difficult NOT to spend. People have a difficult time saving money because the temptation is there to use it on frivolous things.

If you put it towards your debt, then it’s spent and a large chunk of your debt is gone, which is ultimately the best option. It might sting a little bit right now, but later on, you’ll save more money in the long run getting your debt paid off sooner.

3) There Are Better Ways to Save for a Vacation

One of the top ways people spend their refund is on a vacation. There’s no doubt that you deserve one after working hard all year, but there are just better ways to pay for it. A vacation is fleeting and won’t be something tangible to invest your money in. You might get a sick tan, but you’ll still have the same amount of debt as you did when you went in.

The best option is to pay off a chunk of debt and find another option for a vacation. Maybe take a shorter weekend trip somewhere until you have your debt paid off. Your vacation doesn’t have to be super expensive. Maybe pick up a small side job for a few months and sock away the money for a nice trip or save as much money as you can throughout the year

Either way, going on vacation while you have a ton of debt isn’t the most responsible decision someone can make. Adding to your already significant debt isn’t good either. The best thing you can do is buckle down until your debts are paid off. You’ll have a lot of time in the near future to enjoy debt-free living!

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How to Handle IRS or State Back Tax Issues

Written by adminJanuary 4, 2017
Taxes

You know what they say about death and taxes. How long can you delay the inevitable and hold off paying the IRS what they are due without serious repercussions? It is time to request IRS tax relief when the burden of late payments and owed back tax becomes unmanageable. The IRS is not the enemy and needs its fair share of compensation. Partner with them to address outstanding IRS issues like back taxes and get the tax relief necessary to begin planning for your future again.

Options for Taxpayers

The IRS has a number of options available for tax relief. Select the one that best suits your specific situation. Choices include:

  • The IRS Installment Agreement. This may be the best option for a number of reasons. The IRS views the taxpayer as compliant, lowers the number and frequency of IRS letters and phone calls, and reflect the good intent of the taxpayer. It can be used as a solution in the short-term, while still considering other possible methods. This solution is flexible and is available at all times, appeasing the IRS. Taxpayers will continue to have to track payments, accrue interest, and it can take longer to pay off the full amount.
  • Filing of an amended tax return or one after the deadline. When no returns were filed, it is possible to file a return after the deadline. An amended tax return can potentially reduce taxpayer liability, as when liabilities were originally overstated. If for some reason, the taxpayer were not able to file a return, the IRS could file a substitute for the return with the minimal deductions and exemptions necessary for compliance. This is another way to reduce a direct reduction in liability. Filing later can work to your benefit when a tax refund is received after being withheld. A 3 year limitation law applies to any refund claim and can be applied to any owed balance. This option decreases tax liability and reduces possible penalties and interest. It does acquire tax code information and has an issued statute of limitations.
  • The Offer in Compromise (OIC). This is that “pennies on the dollar” much touted in advertisements. The taxpayer’s expenses, income, equity and assets are weighed against their outstanding debt to come to an agreement. Candidates best suited are those with higher liability and lower paying ability. Potential candidates for the program should have no felonious returns, have prepared every estimated tax deposit and payments, and cannot be bankrupt. The OIC program allows taxpayers to retain certain assets, suspends the majority of collection actions, and reduces the debt through settlement. In this program, the taxpayer must deposit higher payments initially, follows strict measures against noncompliance, even 5 years after the program, may be required to liquidate assets, may take years to complete.

The IRS can take steps to initiate actions against taxpayers with substantial amounts in back taxes that take no measures to pay on the amount owed. Within a ten year window, the IRS can potentially:

  • File a Notice of Federal Tax Lien on property.
  • Serve a Notice of Levy on the property.
  • Use a levy for the purposes of collecting back taxes.

Work with credit counselors to review your situation with you and come to a decision on the best approach for IRS tax relief.

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