Financial stability is within reach for anyone willing to take the proper steps. It includes budgeting, saving, investing wisely, managing debt, protecting assets, diversifying income, and continuously educating themselves on personal finance. Bankruptcy can help eliminate tax debt under certain circumstances. But it’s crucial to be aware of the guidelines that apply to this option.
Create a Debt Repayment Plan
Depending on your financial situation, various debt repayment options may be available. Dove Bankruptcy Law firm will be most qualified to assess your circumstances, advise you on the type of bankruptcy you should declare, and assist you throughout the procedure. You can also file Chapter 13 bankruptcy to create a debt payment plan. The plan will be based on your disposable income (income minus necessary expenses) and can include taxes. If you do file, the IRS must stop trying to collect from you, and you might be eligible for an offer in compromise to pay down your tax liability for less than you owe.
Take a Holistic Approach
Getting behind on taxes is a common problem. Harsh creditor calls and the constant pressure to pay bills can cause many people to neglect tax debt. However, if you meet specific requirements, filing for bankruptcy can erase past-due income tax debt in one fell swoop. But it’s essential to understand the nuances of bankruptcy and taxes. For example, tax liens placed on property before you filed for bankruptcy don’t automatically disappear.
Additionally, specific tax penalties, such as the FICA and Medicare taxes deducted from employee earnings, some employment taxes, third-party taxes, and incorrect refunds, are not dischargeable. You will be required to follow the pertinent bankruptcy laws and regulations by the federal court that will hear your case, just like a bankruptcy attorney would. Federal regulations and the Bankruptcy Code are written in a language that is familiar to judges and lawyers but may need help comprehending. You can get legal advice from a bankruptcy attorney from dovebankruptcylaw.com. With legal counsel, you can avoid making mistakes that could cost you money in the long run.
Build a Strong Emergency Fund
An emergency fund gives you peace of mind by knowing you can handle unexpected expenses without raising a credit card balance or taking out a personal loan. Building a savings account with three or more months’ worth of living expenses takes time, but it is doable with discipline and good budgeting practices. It would help if you also considered saving any money influxes that come your way, such as an annual tax refund or birthday and holiday cash gifts. It can make the building of an emergency fund a much faster process.
Invest Your Money Wisely
Military service members train day in and day out, but it’s also essential to prepare for financial stability. Start by saving as much of your income as possible, reduce debt, and invest wisely.
Manage Your Debt
Financial stability allows you to spend money on what’s essential and pursue your dreams. Achieving financial stability takes time and requires the proper management of debt.
Start by creating a list of all the money you owe, including your mortgage or rent, credit card balances, and car payments. Determine which debt is good or bad, and pay off high-interest balances first. Then, focus on paying off lower-balance debts. Make sure to pay all your bills on time and avoid late fees.
Diversify Your Income
Diversifying your income is an excellent way to build a financial safety net and increase opportunities for economic growth. It can include starting a side business, investing in rental properties, and creating an online passive income stream through a platform. However, it’s important to note that diversifying your income takes time and money. Ensure that your new income streams do not compete with your day-to-day job and only take up your free time as you can spare.
Invest in Financial Education
Many financial institutes define financial stability as the absence of system-wide episodes that disrupt the financial system’s ability to function (crises). This definition also involves the stress-resilience of economic systems. Investing in financial education is one of the best ways to achieve this goal. It can help you sort out all the conflicting investment advice and decide what’s uniquely true for your portfolio. Financial literacy has been shown to improve savings habits, avoid unnecessary debt, and build wealth.
Protect Your Assets
It’s crucial to understand the relationship between taxes and bankruptcy. A bankruptcy filing immediately halts collection actions, like wage garnishments, evictions, and foreclosures.
However, the automatic stay does not prevent taxing authorities from collecting unpaid debts or liens on your property. Moreover, not all tax debts can be erased through bankruptcy.
For example, priority taxes are non-dischargeable, as well as taxes due within three years of filing the original return or 240 days after assessment. Creating an asset protection trust before bankruptcy can help shield assets from creditors.