Arizonans can expect to pay a little bit less in taxes, come April 2018. Or we may even expect to get a little bit more back in that tax refund check. According to a report in Capitol Times, Governor Doug Ducey has signed legislation, which immediately boosts by $50, the amount of money that Arizonans can subtract from their earnings before calculating their taxes. That will show up on the 2017 tax forms made available early next year. Another $50 will be added to the “personal exemption” the following year and after that, the amount will be adjusted annually to match inflation.
What This Tax Cut Means
Arizona has five tax brackets, ranging from 2.59 percent for adjusted income for individuals up to $20,000 to 4.54 percent for those earning more than $150,000. The state uses an individual’s federal adjusted gross income as a starting point. However, state law allows a series of subtractions from that figure.
So, that list includes donations to college savings plans and military pay. And there is also that personal exemption at $2,100, a figure that has not been adjusted in many years. Governor Ducey, during his State of the State speech, called for that exemption to be indexed for inflation. The version he signed however includes that $100 boost over two years.
Strategies to Deal With Tax Debt
While any tax cut is welcome, this particular reduction in taxes won’t do much to lighten your financial burdens come tax time. If you are overwhelmed by tax debt, here are a few ways to deal with it:
- Paying your tax bill: If you do get a bill from the IRS showing that you owe them back taxes, you are expected to pay the tax including any interest and penalties. If you are not able to pay the amount that is due, it may be in your best interest to get a loan or borrow the money to pay the bill in full instead of trying to make installment payments to the IRS. This is because the interest rate and the penalties that the IRS charges are higher than what banks or other lenders may be offering.
- Payment options: The IRS does offer several ways in which you can pay your tax bill. You could make the payment online, by phone or by mail. Take a look at all the different options and pick the one that is best for you.
- Reducing penalties and interest: If you are faced with a huge tax debt, that number could go up even more when penalties and interest are added. The IRS often applies various penalties and interest to unpaid back taxes making it even more difficult for taxpayers to pay their tax debt. These penalties, unfortunately, are mandated by the U.S. Tax Code and are commonly assessed for nonpayment or underpayment of taxes, failure to file a timely tax return, etc. In addition to interest that accrues on unpaid taxes, you may also be charged interest on the penalties. It is best to request the IRS for a removal of all penalties and interest to help reduce your overall balance.
- Installment agreement: You may ask the IRS if you can make monthly payments if you are unable to pay the total tax in full. This is basically an agreement between you and the IRS to pay the full amount in monthly installment payments. You must file all required returns and be current with the estimated tax payments or withholding. The IRS may charge you a one-time user fee for a new agreement. If you qualify under the low-income category, you may be able to get the fee reduced.
- Offer-in-Compromise (OIC): The IRS is now offering an OIC program, which is an agreement between the taxpayer and the IRS that settles the tax debt for an amount that is less that the full amount that is owed. This is generally accepted only if the IRS believes, after assessing your financial situation, that you are unable to fully pay the tax debt either through a lump sum or through a monthly payment plan. In order to get this approved, it is important that you present a proper financial picture to the IRS.
- Fresh Start Program: The IRS also offers the Fresh Start Program to help those struggling with tax debt. Individuals and small businesses, under this program, may be able to pay the taxes they owe without facing additional or unnecessary burdens such as a tax lien, bank levies or wage garnishments.
- Tax liens: Typically, the IRS might want to file a tax lien on past due tax liabilities. A tax lien is the IRS’s way to secure its interest in your assets and facilitate collection of the debt. After a lien is filed, the government has a right to all of your property as well as any property or rights to property you may acquire in the future. Once there is a lien on your property, the government can levy or seize your property as a means of collection. In addition, taxpayers may also see a significant drop in their credit score, which means it will become more and more difficult to get a loan or line of credit.
- Check withholding: If you find out after your return is completed that you owe money and that it’s a substantial amount, you may want to review your withholding election. If you owe a large amount of tax, you may need to increase the amount of taxes that are being withheld from each paycheck. Taxpayers who have a balance due year after year may want to change their Form W-4 with their employer. This could help prevent the accumulation of tax debt in the future.
- Estimated taxes: If you are self-employed and don’t have taxes withheld from your income, you may need to make estimated tax payments. If you are required to make estimated taxes during the year, you should do so in order to avoid a penalty. If you are self-employed, be sure that you have made all your estimated tax payments by tax day to avoid tax debt and other penalties.
If you are overwhelmed by tax debt, contact our experienced tax debt relief attorneys at the Pew Law Center at 480-745-1770. We will evaluate your case at absolutely no cost and provide you with the options that might work effectively in your situation.