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Friday November 24th 2017

Tips for Settling Back Taxes

If there is one inescapable truth, it is that the IRS will always get what is owed to them. Being in debt to the IRS is no laughing matter. Owing back taxes can ruin your finances for years and even decades. The best way to settle back taxes are to avoid them all together. There are a number of different ways to pay off what you owe to the IRS. The best decision you can make is look at all the advantages and choices at your disposal before choosing a path towards repayment.

Partial Payments

The way most people pay off their back taxes is through monthly partial payments. This choice works in your favor only if you can make the necessary payments on-time each month until the period of time you and the IRS agree upon has ended. In some cases, people have been able to get away with paying less than they originally owed the IRS. However, you could face a great deal of trouble should you miss a payment. Be certain you can handle the amount before agreeing to a payment plan.

Offer-in-Compromise

An Offer-in-Compromise is probably the best way to settle back taxes. You simply offer what you can afford to the IRS and they choose whether to accept or reject your offer. The closer you are to the amount you owe the better chance there is the IRS will accept your offer.

If you can offer at least eighty percent of the original amount then you should be fine. The IRS will review your financial standing and liabilities before accepting your offer. Should the IRS find you could afford the full amount they will likely reject your offer even if it is ninety-nine percent of the original debt owed.

Penalty Abatement

There are two other alternatives for those significantly financially strapped. The first is known as penalty abatement. Penalty abatement is a request you can make to have the IRS completely drop all your tax penalties. The IRS will conduct an in-depth search of your financial standing to see if you are as bad off as you say you are.

After reviewing your financial status, the IRS may eliminate your tax debts altogether. Requesting penalty abatement generally knocks off a good chunk of IRS debt, if it is accepted. If you think you have a case for penalty abatement, you should speak to your tax preparer immediately.

Appeal

Lastly, should your tax problems get bad enough for the IRS to threaten seizure, you should file a Tax Collection Appeal. This will allow you to tell the IRS your financial well is dry and you cannot possibly pay your taxes. The appeal will go to an appeal officer who will look at your financial standing and make a decision in about a week.

Now that you understand what some of your options are you should be better equipped to handle the stressful task of settling your back taxes. Hopefully, you will be able to go back to avoiding back taxes altogether in no time.


529 Plan Funds Won’t Pay Your Student Loans

One of the many expenses parents take into consideration when raising children is the future cost of sending that child to college. Various savings options allow families to begin a nest egg for that very endeavor. The government, in cooperation with investment firms, developed the high yielding 529-college savings plan. While the plan provides substantial growth and returns (5% or more annually), the option also contains many drawbacks…one of which is that 529 plan funds don’t pay for student loans.

Expenses Covered Under 529 Plans

Contributions and earnings from 529 plans are only tax exempt when used for qualified higher education expenses or QHEE. Specifically, these expenses include books, equipment, mandatory fees, supplies and tuition. The plans also cover room and board, as long as the child enrolls at a minimum of a ½-time student, and under certain circumstances, there may be a cap on housing allowances.

The money may also pay for the expenses of special needs students. The money cannot be used for paying off student loans or for any other purpose, including food, personal expenses or travel, otherwise plan owners must pay federal and state income tax in addition to a 10% penalty on earnings.

Non-covered 529 Plan Costs

While the monies from 529 plans are transferable from state to state, certain schools in states may be ineligible for these funds. Parents having a 529 plan in Wisconsin can use the money for college in Florida. Though most schools qualify, some do not.

In addition to possible taxation for improperly used money from 529 plans, the accounts are subject to application fees, management fees and annual maintenance fees, that in total, range from $300 to $2000. These charges vary with individual states and with the type of plan acquired.

One might argue that student loans are for money that paid for the expenses that 529 plans do cover. Unfortunately, the law does not see it that way. Student loan payments and the interest attached to them is not covered by a 529 plan. This means that parents need to carefully consider which costs they take loans for and which they pay for with 529 plan funds.

Parents considering a 529 plan must either begin the account early enough in the child’s life in order to pay for college from the start of enrollment, or have a backup plan to accommodate student loans and other non-school related expenses. The Coverdell Education Savings Account has similar restrictions, the difference being that until the end of 2010, individuals were also allowed to use the monies for K-12 educations.

How to Get the Most out of Both

The smartest thing to do is to create a list of college expenses that your child will incur. Then pull out those that will be covered under your 529 plan. If the plan has enough to cover all of these costs, great! You can simply pay the non-covered costs by loan, savings or other investments you have set aside for your child’s education. If not, the balance of education expenses should be lumped with the costs not covered by the 529 plan and addressed through whatever means you have set up for these costs. Just don’t get caught with a large 529 account and a school loan when you can’t use those funds to pay the loan. See what you can pay with the 529 account first and then dip into loans if you must.