IRS Explains the "What If" Tax Implications Of An Economic Downturn

What if I lose my job? Is my unemployment check taxable? Can I afford to take money out of my retirement account? These are just a few of the "What If" questions people are dealing with these days.

The IRS recognizes that many people are going through difficult times financially. Often, there is a tax impact to events such as job loss, debt forgiveness or dipping into a retirement account. If your income has decreased, you may even be eligible for certain tax credits, such as the Earned Income Tax Credit, which can mean money in your pocket.

Most importantly, if you believe you may have trouble paying your tax bill, contact the IRS immediately. There are steps the IRS can take to help. To avoid additional penalties, you should always file your tax return on time even if you are unable pay your tax bill.

Here are some “What If” questions that are answered on the official IRS Web site. Simply go to IRS.gov and type the keywords "What If" in the Search box at the top of the page.

• Job Related
  What if I lose my job?
  What if my income declines?
  What if I withdraw money from my IRA?
  What if my 401(k) drops in value
• Debt Related
  What if I lose my home through foreclosure?
  What if I sell my home for a loss?
  What if my debt is forgiven?
• Tax Related
  What if I can’t pay my taxes?
  What if I can’t pay my installment agreement?
  What if I can’t resolve my tax problem with the IRS?
  What if I need legal representation to help with my tax problem but can’t afford it?

Remember: to access the genuine IRS Web site be sure to use .gov. Don't be confused by Internet sites that end in .com, .net, .org or other designations instead of .gov. The address of the official IRS governmental Web site is www.irs.gov.

The Real Price of Tax Debt Resolution

That Basic Question
If you're like me the first question you want to ask after hearing about a product or service is "How much does it cost?" And it's a very good question. The last thing you want to do is waste your time learning about a service that's great but you cannot afford. It's human nature. So of course "How much will this cost?" is one of the first questions that get asked when those in tax debt hell finally break down and call a tax resolution firm.

The Lie
Unfortunately, however, the debt resolution industry as a whole markets itself as a quick fix to big problems. People expect a low $29.99 fee and a miracle a lot like they expect tiny pills to melt away years of unhealthy eating and sedentary lifestyle. It just isn't that easy.

So of course those in trouble with the IRS and dealing with the resulting financial crisis contact a firm and have unrealistic expectations right off the bat. Well, let me pop your bubble and let you know there is no "quick fix" to tax problems and if someone offers you a miracle with a low fee you should RUN.

The Truth
Whether you're problem is from years of dodging the tax man or a one-time mistake that has had catastrophic effects, the end result is the same... someone must negotiate with perhaps one of the biggest, slowest, most complex and bureaucratically bogged down institutions known to man. Think this is easy? Think this is quick? I think not.

The greater thing to realize is not how much the resolution service will cost you, but how much not resolving the problem will cost in the end. I bet you like your home and car. If you don't pay, the IRS will like them too--as your form of payment. And that's not the worst part. Your paycheck, your credit score, savings, 401K's... all within the scope of the IRS. Still think a "large" payment up front is a lot to pay to protect these things? I think not. You must put fees in perspective.

Now, I bet you were thinking that this post would give you a list of fees. Sorry to disappoint. Depending on the severity of your debt, fees can vary widely. I can say though that don't come to a firm expecting to pay $30, $50, or even $100 for a fix. But do come with an open mind and a willingness to try to make fees work. Research your firm. Make sure you know who you are buying from. And then give the fees a once over again. But do prepare yourself, for if you don't the sticker shock may seem worse than it actually is and prevent you from fixing something that MUST be fixed.