A little thing called inflation has been plastered all over the news cycle for the last few months now… and it’s taking its toll on Greater Memphis people.
And to add to the difficulty of stretching those hard-earned dollars… increasing interest rates, rising prices, and layoff rumors in certain sectors. Time to tighten the old belt.
Now, you might be tempted to panic. To that I say, don’t. Keeping the emotional swirl at bay and keeping your mind clear is necessary in times like these.
BUT… If you’re one of those people who’ve let things slide when it comes to paying off your debts (especially tax debt)… or you’ve lived haphazardly when it comes to your finances, well… NOW is the time to get your house in order.
And by that, I mean creating a budget. This is the first step you’ll want to take when debts (including those owed to your friendly federal and/or state tax agencies) pile up and financial crisis threatens to shipwreck you.
A budget helps you see where you’re bleeding financially. From there, you can determine exactly how to stop hemorrhaging cash and get your money allocated to the right places – including paying off your debt.
Not only do you want to figure out where to put your money, but you’ll also want to avoid some of these common mistakes Greater Memphis people make in their personal finances before dealing with their tax debts:
Opening new lines of credit. Do what you can to keep yourself from getting into further debt. Don’t open new credit cards or buy real estate. In most cases, adding to your monthly cash outlay may go against what the IRS allows for certain expense categories.
Buying a new vehicle. Don’t get a new (or newer) vehicle just yet. If you get into a new lease or loan payment this can go against you as well. The IRS only allows $588 per month as an allotted car payment. So, if you do get a newer vehicle, don’t go over this amount.
Retirement contributions. Reconsider contributing to a retirement account. Why? Voluntary contributions to a retirement plan are just something the IRS doesn’t consider an allowable expense when you owe them money. The normal deductions for retirement contributions will not come into play, and the IRS will consider this as cash you should be giving them to pay off your tax debt.
New life insurance policies. Don’t get new life insurance unless it is a term life insurance policy. Life insurance should be an important part of your financial plan, but IRS rules do not allow for a deduction of any life insurance premium other than a term life insurance policy.
Not allocating cash to pay for future taxes. In order for the IRS to allow you to get into a payment plan, you have to be up-to-date with your current year’s taxes. They don’t want you to keep adding additional years to the amount you owe them already.
Remember, your cash reserves are limited… which means you have a limited amount of cash to spend. Make sure that you use the cash outflow wisely.
Make sure you pay all of your necessary expenses, food, clothing, rent/mortgage, gas, utilities, healthcare… and then your federal/state taxes.
After that, you need to be careful about what you spend your hard-earned cash on. The IRS leaves little room for you to pay anything else.
And while you can deal with tax debts and the IRS on your own, getting help from a Greater Memphis licensed tax professional (CPA, EA, attorney) means you’ll have someone who knows the system and how to deal with the IRS on your team.
Of course, this is what I am: a licensed professional. And I have the experience to handle your case.
If you’re ready to deal with your situation head-on, we’re here to help you with a supportive and non-judgmental attitude:
And if you decide to go it alone, keep these tips in mind.