As tax season approaches, many people across the country are starting to get worried about their tax debts. Since paying taxes is not something that you can easily avoid, you may find it helpful to look into some of the practical tax debt reliefs you may want to consider.
As a tax payer, you are obliged to pay the government a total amount of money for a taxable event such as income, revenues derived from your business, sale of assets or inheritance. An entity is also required by law to pay for its revenues less all expenses and other taxable activities.
A tax liability is considered as a short-term liability which takes precedence above all your other debts, simply because taxes are considered as the lifeblood every sovereign country. For this reason, it is vital for taxpayers to set aside enough money to pay for tax liabilities. Capital gains tax, fringe benefits tax and business tax are examples of taxes that you may owe the government.
There are times that business face financial setbacks that keep them from paying their taxes on time. This happens when their earnings decrease or increase, or there are changes in the circumstances of your business. You can also incur tax liability when there are errors in tax planning, book keeping and accounting. Failure to budget your tax obligations or to anticipate accrued or assessed taxes for a certain tax period may also put unnecessary pressure on your finances.
Let’s take Brad as an example. He is a sole proprietor of a car repair shop. He runs the business from home. His business is growing at a fast pace and he is getting more customers each day. But, Brad overlooked his books and failed to pay his tax dues on time. As a result, he has to pay very high accrued tax debts.
The Australian Tax Office is now after him, telephone staff rings him for hours and he fears that it will be sold to a debt collection company which will make the matters worse. He is not prepared to lose his peace of mind as debt collectors would pound on his door until he pays off his dues. But, he has a problem—he cannot apply for regular loans because he cannot present income tax return for the past two years and he does not have the financials required buy most banks. If you’re Brad, what will you do to pay off your tax dues?
Options to pay tax debts
If you cannot afford to pay your taxes there are some solutions available to you. You can find a loan with an interest rate which is comparably lower than what the ATO.
Regular tax debt loans from banks and lending institutions
If you have a good credit and you have complete financial documents, such income tax return for at least two years and payslip, you can apply for regular tax debt loans from banks.
Low document tax debt loans
When you do not have financial documents, you can apply for low doc tax debt loans from alternative financing companies. Those with credit blemishes or those who are being pursued by the Australian tax Office for delinquent taxes, can opt for the latter.
Australian Tax Office Payment Plan
You can also negotiate with ATO which may arrange a Payment Plan payable within 1 to 2 years. While you can renegotiate the amount of taxes you owed when your tax is delinquent, it will not completely extinguish your debts. They may lower the amount depending on your circumstances. The agency has strict payment terms that you need to comply with. If you have ongoing tax liabilities and other existing debts, you may find it difficult to sustain the payment structure. This government agency does not tolerate missed payments, so make sure you have enough funds to follow the payment plan.
Why apply for low doc tax debt loans
The Australian Taxation Office may force you into bankruptcy, send your debt to a collection agency or apply for a court judgment against you. Take note that most tax debts cannot be extinguished by bankruptcy. You will still have to pay your tax dues. So, if you cannot pay your tax liabilities, the better solution is to apply for a loan at any alternative financing company that offers low doc loans with easy repayment terms.
Tax deduction on tax debt loans
If you are running a company, the interest paid on your tax liability loan can be considered as tax deductible. But, individual tax payers, sole proprietors and those in a partnership cannot claim for tax deductions on the interest of the tax liability loan. So, before you file for tax deductions, consult your accountant first, or visit the nearest ATO branch in your area.
When looking for loans to pay your tax debts, you may consider low doc tax debt loan or debt consolidation loans, so you can roll over all your debts into a single payment. The latter option can help you gain more control of your debt.