The Implications of Tax Debt Settlement and WhyOpportunities Are You Should not Care

(The author of this article is not a tax lawyer, Certified Public Accountant, or registeredrepresentative, and this is not to be considered tax advice. If you need tax recommendations, youought to seek advice from somebody who is certified in this field.

When Larry King asked him why he decided to do it, Gates admitted that he was losing too muchmoney on the taxes. You see-- by making $7 an hour, he would be in the lowest tax bracket, and if hecould manage to make less than $19,000 a year, then he would not have to pay any taxes at all! Backwhen he was making a $1 billion yearly, he was left with $500 million after taxes every year.

As outrageous as http://www.nolo.com/legal-encyclopedia/tax-debt-chapter-7-bankruptcy.html theabove example sounds, it's precisely the exact same logic utilized by debt relief consumers who fearthe tax implications of financial obligation settlement. For one, most people enrolled in debtsettlement programs don't have to pay taxes on their cost savings as is (more on this later).

Frank owed $20,000 at 19 % interest when he enrolled in a financial obligation settlement program.He was taxed like he made $49,000, which put him in the 30 % tax bracket and implied he had tocome up with $2700 on April 15th. It's quite clear that it was still in Frank's finest interestseconomically to do debt settlement.

It does not end here. The majority of debt settlement candidates never have to pay taxes on the debtanyhow. The IRS exempts any individual who was technically insolvent at the time their financialobligation was settled from needing to pay taxes on the savings. So the next concern is, what does itmean to be insolvent? According the IRS, somebody is insolvent when their assets (exactly what youown) surpass their liabilities (exactly what you owe), and it needs to come as no surprise that whensomeone is at the http://ctaxrelief.com/irs-debt-settlement/ point when they're seeking debt relief,they're most likely in debt as much as their eye spheres and therefore are insolvent. If you owe morethan the value of your assets, then all you need to do is complete IRS type 982 together with yourtax return showing this reality. All told it will most likely take you a couple hours to do this, and ifyou saved $46,000 like Frank in our example, then it's the equivalent of making $23,000 an hour.Unless you're Bill Gates, it's most likely worth it.

You see-- by making $7 an hour, he would be in theleast expensive tax bracket, and if he might handle tomake less than $19,000 a year, then he would nothave to pay any taxes at all! As preposterous ashttp://time.com/money/3733393/tax-refunds-debt/ theabove example sounds, it's exactly the same logicemployed by consumers who fear the taximplications of financial obligation settlement. Hewas taxed like he made $49,000, which put him inthe 30 % tax bracket and suggested he had to comeup with $2700 on April 15th. Most financial obligation settlement prospects never have to pay taxeson the debt anyway. The Internal Revenue Service exempts anybody who was technically insolventat the time their debt was settled from having to pay taxes on the cost savings.