Debt Settlement: A Guide for Negotiation
  • October 19, 2021
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Getting overwhelmed by debts and tax dues is quite a common issue faced by millions of people in the country. People facing a difficult time paying what they owe the IRS or some other creditor can turn to a debt settlement facility, which can help them clear all dues in a very short period. For tax debts, this can be in the form of an IRS installment agreement. While debt settlement is an excellent solution when looking for debt relief, there are some implications to availing this option. Let’s take a closer look at some of them.

What is meant by Debt Settlement?

Debt settlement refers to an agreement between the lender and the borrower that allows the latter to settle their debt for a smaller amount than what they owe. While this lets the borrowers clear their dues for a reduced amount, it allows the lenders to get at least a part of the total amount, as opposed to not receiving anything and proceeding through costly collection processes. This, however, doesn’t allow the borrower to get away without facing any implications. Debt settlement shows up on your credit report and negatively impacts your credit score while possibly being troublesome when applying for loans as well.

Related Blog Post: What You Need to Know about the 2021 Tax Season

What are the Potential Tax Implications Of Clearing Debts?

The debt cleared might lead to your creditor sending you a 1099-C cancellation of debt tax notice, which requires you to show this amount as “other income” on your tax return that you file with the IRS. Even if you don’t receive a 1099-C, you must report the canceled debt as income. Although you must deal with the taxes for the amount, there are a few tax relief options available that you can also avail.

What Is The Amount You Need To Pay?

The amount you need to pay is calculated as per the normal tax rate, which varies depending on your taxable income and ranges from 10% to 37% as for the 2020 tax year. The US has a progressive tax rate, which means the tax percentage increases as the taxable base increases. That means individuals with higher incomes deal with huge taxes even when they are running low on funds.

Related Blog Post: When to Hire a Tax Attorney

What Happens If You Decide To Refrain From Reporting?

As per the legal guidelines, taxpayers must report all their taxable incomes, including any debt settlements. When you receive a 1099-C, the IRS is also informed about your debt settlement, making it imperative for you to report it. In the event that you don’t report, you will not only have to pay your tax dues but also fines for failing to report your debt settlement. On the other hand, if you don’t receive a 1099-C, the IRS doesn’t get to know about your debt settlement. However, if you ever are chosen for an audit, the settlement amount can be detected and potentially lead to legal action. It is highly recommended to inform the IRS about the settlement yourself to make sure you’re legally safe and don’t need to worry about potential legalities in the future.

Conclusion

For individuals that need help with the tax issues related to debt settlement, it is highly recommended to hire a IRS tax lawyer to help you with the complex legal procedure. The proficient team of professionals at the Law Offices of Nick Nemeth is known for providing the best solutions when it comes to IRS debt relief in Dallas through avenues such as IRS installment agreement. Call (972) 426-2553 for a free consultation today and get answers to all your questions about IRS payment agreements in Dallas! You can also fill our Contact Form or email jamie@myirsteam.com.

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What Our Clients Have to Say

Susan WilsonSusan Wilson
03:27 25 Jan 23
I have been very pleased with the solid counsel and guidance that Nick Nemeth has provided me regarding my tax issue. I found him to be honest and straightforward which I appreciated. I was impressed with his relevant experience and knowledge . He has definitely brought me peace of mind during a difficult and stressful time.
Sarah HowardSarah Howard
03:44 14 Nov 22
I would like to thank Mr. Nick and his staff for the superb help that I received from them. My IRS problem was resolved quickly and efficiently. It took 2 visits to convince me that I was over my head. I thought that I could call the IRS, appeal my tax notices and settle on a payment plan on my own. After many phone calls to the IRS, waiting sometimes more than 4 hours with no resolution to speak of, it proved to be extremely difficult and stressful. Revisiting Mr. Nick was a huge wake up call. My account was reviewed, and a payment plan was established with the IRS within a week. I will be forever grateful to the staff who worked on my case and especially to Lorna who listened to me vent while going through this painful process.
M WM W
00:33 07 Aug 22
I cannot say enough good things about Nick and his team. When I first met with Nick he was up front, honest, friendly and efficient. When I worked with one of his attorneys, Eric B, I was just as pleased. All of the staff there are nice and very helpful. I wish I hadn't waited so long to get help with my issue. Over 6yrs I tried getting through and getting anywhere with the IRS and hardly made any progress. I know this may not be the case for all, and even I thought it would take longer than it did, but 3mos and they had my situation straightened out. I still can't believe it. Thank you thank you THANK YOU for all that you did for me. This is a huge burden gone out of my life now thanks to you. If anyone needs help out there, I know you may not want to shell out more money to get their help but it may just save you in the long run.
Spoilly GirlSpoilly Girl
23:49 03 Aug 22
The Nemeth Law team is exceptional. They treat their clients like a family member who is in crisis. They want you to get the best possible outcome. I really appreciate everything that they did for me. Jake and Ashley had the greatest role in my case and it all turned out for the best for me. Thank you Nick and team for easing my fears and getting me through the long process. I'm truly grateful.
Eddie WaltEddie Walt
19:44 12 Jul 22
During a time in which competent, professional service at a fair price seems to have disappeared, Mr. Nemeth and his team are a refreshing breath of fresh air.From my first phone call to the final settlement of our case with a non-responsive IRS, they under-promised, over-delivered and were in constant courteous contact to make sure we knew exactly what was happening and where we stood.I hope to never need their services again, but, should I receive another friendly letter from the IRS...I know who to call!
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