Inflation is the hot subject now. It’s not only impacting your credit cards and bank accounts and your groceries and your gasoline, but it’s also impacting your taxes.
For many taxpayers, the impact of inflation is actually helping lower their taxes, but for some taxpayers it is making the task of paying down their tax debt harder.
HOW INFLATION LOWERS YOUR TAXES
Let’s start this report by looking at how inflation lowers your taxes. Under the tax law, many of your deductions are indexed to inflation which means as inflation increases the value of their deductions can also increase.
The IRS recently announced that the limits on contributions to many retirement accounts were increased. As a result of these higher contribution limits, the deductions for certain IRA and retirement plan contributions will be going up in 2023.
The IRS also recently announced that the standard deductions for taxpayers who don’t itemize their deductions have also been increased and that means more of their income will be tax free starting in 2023.
If the IRS is exceptionally slow in sending you a refund, you are entitled to collect interest that will be added to your refund amount. Currently the IRS is paying a 6% interest rate on overpayments — which is the money it can’t refund because of a processing logjam.
HOW INFLATION RAISES YOUR TAXES
But let’s not forget that inflation also works against you when you are dealing with the IRS. When you owe money to the IRS, the IRS adds interest as well as penalties to your unpaid tax debt. Those interest charges go up and down depending on other interest rates in the economy. And with the Federal Reserve raising interest rates, the interest rates charged by the IRS on tax debt have been going up too.
Currently the IRS is charging a 6% interest rate on underpayments.
You can also make the argument that inflation and higher interest rates are raising costs for government, so that means the government needs more money from tax revenue to pay for its operations. So yes, inflation and higher rates make the IRS hungrier for tax revenue.
INFLATION AND THE IRS FRESH START INITIATIVE
Because of inflation and higher interest rates you should pay down and pay off your IRS tax debt as soon as possible. If you need help, the IRS offers payment plans — but they contain interest charges — and the IRS also offers the Fresh Start Initiative and the Offer In Compromise Program which might have lower interest or no interest at all.
THE IRS FRESH START INITIATIVE AND OFFER IN COMPROMISE PROGRAMS HAVE INDIVIDUAL SETTINGS
Both the IRS Fresh Start Initiative and the IRS Offer In Compromise Program have individual settings for each taxpayer who is enrolled in these programs. It’s not a “one size fits all” deal. This is why it is important that you talk with a tax professional about these programs and why using a tax professional might help you get the best possible IRS Fresh Start or Offer In Compromise solution.
In the meantime, understand that the tax debt meter on your account is running at the IRS and your tax debt is growing. Inflation and higher interest rates are making it more expensive for you to pay off your tax debt every day that you put off starting the IRS Offer In Compromise or Fresh Start Programs.
TALK TO A TAX PROFESSIONAL NOW AND DON’T DELAY
Because the interest rate meter is running and it’s not stopping you need to talk to a tax professional now and this is something you shouldn’t delay. Time is really money when the interest rate meter is running.
Call your tax professional now and ask them if you can qualify for the IRS Fresh Start and the Offer In Compromise Programs. We offer a free consultation with one of our tax resolution experts about the IRS Fresh Start and the Offer In Compromise. And if you don’t qualify our tax resolution experts can discuss other ways to pay down your debt and to save you money.
BUT THE IRS ISN’T BOTHERING ME?
When I talk to taxpayers about their overdue tax debt, the taxpayers sometimes say to me that they don’t care because the IRS isn’t bothering them for any money. Well, that doesn’t mean you’re not being charged interest and penalties. In fact, I can promise you that you are being charged interest and penalties on your tax debt even if the IRS is not bothering you for money.
CALL ME IF YOU’RE NOT READY FOR A TAX PRO
Some taxpayers tell me that they don’t think they’re not ready to talk to a tax professional. I think that’s the wrong attitude. But if you’re not ready for talking to a tax professional then talk to me — and let me tell you why you should be talking to a tax pro. Here’s my private phone number — call me and if I don’t answer I promise to call you back. 949-570-9908 is my direct line. I’ve been reporting news about taxes and the IRS for decades — literally for decades — and I’ll be happy to answer what questions I can and then I’ll tell you to talk to a tax professional for expert advice.
Watch my video below and then call me at 949-570-9908 and thanks.
Call me. Call Your Tax Professional. The interest rate meter is running.