When clients contact us about a garnishment or levy by the IRS on their wages they want it removed as quickly as possible. I understand that, but it is also prudent to make sure that any “posturing” that will help the situation long term is done first.
The IRS will allow reasonable amounts for living expenses before considering what amount is available for one’s historical tax debt. Before agreeing to a monthly payment plan to get the levy released, there are a number of posturing items to resolve as quickly as possible.
First, make sure your withholdings on your pay check is correct. If you are claiming too many exemptions, correct you W-4 form immediately so that you will not owe any taxes when you file the current year return. Every additional dollar you have withheld will reduce your monthly payment by exactly the same amount.
Second, if you have a car that needs to be replaced or one that you own free and clear, you may want to consider getting a new or newer vehicle. Once you are locked in on a monthly payment amount, the IRS will file a tax lien and the lien will make it next to impossible to get a car loan. If you have an old vehicle that you own free and clear and you turn it in for a newer car, the payments you make will reduce the amount you have to pay on your historical tax debt dollar for dollar up to a certain amount. Right now that amount is $496.
Thirdly, if you don’t have health insurance consider getting a policy. Again, you reduce your monthly payment to the IRS on your past tax debt dollar for dollar on the cost of your insurance premiums. If you want health insurance instead of making a higher monthly payment to the IRS you will need to do this before the installment arrangement is entered into.
It is not possible in a short blog to list all of the items one needs to consider. Posturing can lower the amount the IRS will consider for an Offer in Compromise. It can qualify you for non-collectible status, and it can make it possible for you to discharge your taxes in bankruptcy and make no payment at all to the IRS on your past debt. Remember that these suggestions are not universal and need to be reviewed with a professional after making your representative knowledgeable of your financial affairs.
Scott Allen E.A.
Tax Debt Advisors, Inc.