Back taxes: These represent taxes from a previous period or year that a debtor did not pay when due, either accidentally or intentionally. Back taxes may also arise when taxes are underpaid. Individuals may avoid penalties and fines by filing back taxes accurately and expeditiously.
Bad-credit credit cards: These cards, which help consumers rebuild their credit by keeping their account balances below the credit limit and making timely payments, are of particular benefit to borrowers with a damaged credit history or no credit history. Both unsecured and secured bad-credit credit card providers report to credit bureaus, thus enabling borrowers to re-establish a positive credit score. Many bad-credit credit cards offer a zero interest rate during the first year as well as bonus points and rewards.
Balance transfer: This process involves consolidating credit card debt by transferring the balance from a high-interest card to one with a lower APR or teaser rate, thus enabling borrowers to save a lot of money. A balance transfer also simplifies bill payment since consumers need only write one monthly check to one creditor.
Bankruptcy: This refers to the legal proceeding in which businesses or individuals declare themselves unable to repay debts and are granted a fresh start. Bankruptcy also ensures that a debtor's assets are equitably distributed among his or her creditors. Chapter 7 bankruptcy allows debtors to have most of their debts forgiven, while Chapter 13 bankruptcy enables them to restructure their debt or repay it pursuant to a payment arrangement.
Certificate of Discharge: The IRS discharges a federal tax lien when a taxpayer sells his or her home or if the property in question becomes worthless.
Circuit breaker programs:
These popular property tax relief programs reduce the property taxes paid by taxpayers earning below a specific income level. Numerous states offer circuit breaker programs, many offering its benefits to both the elderly and the under-65 population and a growing number extending eligibility to renters as well as homeowners.
Consolidation loan: This personal loan, which offers reduced interest and monthly payments and a longer repayment term, consolidates and pays off two or more loans.
Consumer credit counseling services: Organizations specializing in these types of services typically help consumers 1) balance their budgets, 2) manage their money, 3) create a debt management plan (DMP) by negotiating for a lower monthly payment and interest rate with creditors, 4) eliminate over-the-limit and late fees, 5) stop calls from collectors, 6) avoid bankruptcy and foreclosure. Consumer credit counseling services also include credit counseling and financial education.
Credit card consolidation: This involves combining numerous high-credit card balances into one single card boasting a lower interest rate and reduced monthly payments to just one creditor. Credit card consolidation may be achieved via a home equity loan or line of credit, a low-interest personal loan, or a low or 0% interest credit card.
Credit limit: This represents the maximum sum of money that a borrower may charge on a credit card and includes finance charges, cash advances, fees, and purchases. A consumer's credit history determines his or her credit limit.
Credit rating: Also known as the FICO score, this ranking tabulated by a credit reporting agency of a borrower's payment history, debts and assets provides an assessment of a business or individual's creditworthiness. A credit rating helps lenders determine the likelihood that a borrower will repay a loan.
Credit repair service: Companies offering this service help consumers clean up their credit report and improve their FICO score by disputing negative items such as tax liens, charge-offs, and bankruptcies. Credit repair services assist clients in the removal of misleading and erroneous entries from their credit reports and advise them on debt management and new credit building.
Debt Management Plan (DMP): This involves an indebted consumer's deposit of monthly funds with a credit counseling agency, which in turn utilizes the moneys to pay off the client's unsecured debt pursuant to a payment arrangement between the client and his or her creditors. DMPs, which may take 48 months to complete, offer the benefits of waived late fees, low interest rates, affordable monthly payments, and one convenient payment to one creditor.
Debt Proration: This consists of an agreement between a creditor and borrower, typically brokered by a credit counselor, to lower payments to a portion of the amount due. In debt proration, living expenses are decreased in order to free up as much cash as possible for the repayment of debts.
Fair Credit Billing Act (FCBA): This federal law, which is applicable to "open end" credit accounts, sets guidelines for credit card companies on how to resolve billing disputes by requiring them to conduct an inquiry and resolve the issue within 90 days. The Fair Credit Billing Act requires consumers to provide written notification to their credit card issuer within 60 days of spotting a billing error on their statement. Under the FCBA, billing errors include such items as mathematical miscalculations, failure to post payments, and unauthorized charges.
Federal tax lien: This constitutes a legal claim by the IRS against a delinquent taxpayer's property as payment or security for back taxes. The IRS may file a tax lien certificate if 1) it determines the individual's tax liability, 2) it sends a notice and demand for payment, and 3) the debtor fails to submit payment within 10 days of receiving the notice. When a federal tax lien is imposed on a taxpayer's property, he or she loses rights to those assets.
Foreclosure: This legal proceeding involves enforcement of a lien against a homeowner's property by a creditor or the IRS for purposes of satisfying a debt. Typically, the IRS dispatches a marshal or sheriff to sell the property and disburse the proceeds to the former.
Homestead credits: Homeowners and renters who have no earnings or who are in the low to middle-income bracket can reclaim all or a portion of their state taxes withheld. Homestead credits reduce the property tax paid by such individuals occupying certain property as their primary place of business. The amount of property taxes or rent and income determine the amount of the homestead credit.
Homestead exemption: This is designed to protect residents' home equity from creditors and the value of the home from property taxes. Homestead exemption laws 1) provide shelter to the surviving spouse, 2) offer qualifying homeowners a reduction in their property taxes, and 3) prevent creditors from foreclosing on individuals' primary residence. The homestead exemption is automatic in some states, while in others, homeowners need to file a claim with the state.
Income Debt Settlement: This is a process whereby lenders agree to settle an account by accepting a percentage of the full amount due (typically 50% or less). The outstanding balance is then forgiven. The IRS requires creditors who enter into an income debt settlement to report the canceled balance if the sum of the forgiven debt is at least $600.
Innocent Spouse Tax Debt Relief: This protects spouses who file a joint return from joint and individual liability for claiming improper credits or deductions. To be eligible for innocent spouse tax debt relief, a taxpayer must 1) have filed a joint return that contains an erroneous tax income reporting; 2) prove that when he or she signed the joint return, he or she had no knowledge or reason to know that the tax was understated, 3) show that it would be unjust to hold him or her liable for the understated tax, and 4) request relief within two years following the IRS' initial attempt to collect the tax from him or her.
IRS audit: This refers to an impartial scrutiny of corporate or individual tax returns to ascertain their accuracy. To protect themselves from an IRS audit, taxpayers should substantiate the information on their returns. Some of the situations that increase the likelihood of being audited by the IRS include 1) elevated deductions, 2) failure to report income, 2) mathematical errors, 3) significant charitable contributions, 4) missing information, and 5) being in a high income bracket. The IRS conducts three types of audits: 1) field audits, 2) office audits, and 3) correspondence audits.
IRS e-filing: This is an accurate, expeditious, and convenient method of filing one's federal and state tax returns. Taxpayers who utilize electronic filing benefit from faster refunds and the ability to verify the status online to ensure that the IRS received their tax return. There are numerous authorized IRS e-file providers that prepare and file taxpayers' returns online and e-file them directly to the IRS.
IRS hardship deferment: The IRS issues a hardship deferment upon finding that the taxpayer is experiencing economic hardship and is unable to pay his or her tax debt. Once the hardship deferment is granted, the IRS temporarily ceases collection efforts until the debtor's financial situation improves.
IRS installment agreement: Also referred to as an IRS payment plan, this payment arrangement allows delinquent taxpayers who are current in their tax return filings to pay off their back taxes in manageable and smaller increments. To enter into an installment agreement, taxpayers must 1) determine their tax liability, 2) set up a payment plan, 3) fix a day for their monthly payments, and 4) select a monthly payment amount. The IRS issues a response within 30 days.
IRS payment plan: This is an installment agreement whereby delinquent taxpayers who owe at least $25,000 are allowed to make monthly payments that are smaller and more manageable. The amount of the installment agreement will depend on the sum that is owed and the debtor's ability to repay it within the time period that the IRS has to collect the outstanding tax balance.
Itemized deduction: Expenses that lower a person's taxable income by being deducted from his or her adjusted gross income (AGI) and that taxpayers may claim on their tax returns. As an alternative to the standard deduction, itemized deductions- which are featured on Schedule A- are generally restricted to 2% of the AGI. Some of the most common itemized deductions are 1) charitable contributions, 2) medical expenses, 3) mortgage interest, 4) local and state taxes, and 5) employee expenses.
Low Income Taxpayer Clinic (LITC): This type of clinic offers legal support and tax education to low-income taxpayers experiencing tax dilemmas with the IRS. LITCs provide assistance with 1) referrals to tax assistance entities, 2) levies and liens, 3) deficiency notices, 4) audits, 5) appeals, 6) collections issues, 7) requests for innocent spouse relief, and 8) IRS tax help.
Not currently collectible: Taxpayers who are currently in their tax return filings and who are unable to pay an installment agreement or are ineligible for an offer in compromise can request that the IRS place their account in a Currently not Collectible (CNC) status. A tax debtor's accounts can remain in not currently collectible status as long as he or she is unable to make the monthly payments. This tax debt settlement method provides relief from collectors, bank levies, and wage garnishments.
Notice of Federal Tax Lien: This constitutes public notice to creditors that the IRS has a claim against all assets of a delinquent taxpayer, for an amount equivalent to his or her tax debt. Before filing a Notice of Federal Tax Lien, the IRS must show that 1) they assessed the taxpayer's debt, 2) they sent a Notice and Demand for Payment, and 3) the taxpayer refused or failed to pay the tax liability in full within 10 days of notification of the debt.
Offer in compromise: This is a tax debt settlement measure whereby the IRS allows a taxpayer to pay off his or her tax debt for an amount less than what he or she owes. Tax liabilities may be compromised if one of the following criteria is present: 1) doubt as to the IRS' ability to collect the tax debt; 2) doubt as to the taxpayer's liability for the debt; or 3) imposition of the tax would be inequitable and unfair or would pose an economic hardship to the taxpayer.
Partial payment installment agreement (PPIA): This payment option enables delinquent taxpayers to submit monthly payments that do not pay off the entire tax liability. Upon meeting the terms of the installment agreement, the outstanding balance is forgiven.
Payment history: Comprising 35% of the FICO or credit score, this variable provides the following information about a consumer: 1) number of past due debts, 2) number of accounts paid, 3) outstanding balances on delinquent accounts, 4) duration of delinquency, and 5) public records such as wage garnishments, liens, lawsuits, judgments, and bankruptcy.
Release of Federal Tax Lien: Within 30 days of a taxpayer's satisfaction of his or her tax liability or the unenforceability of the federal tax lien imposed upon him or her, the IRS must release the latter. Examples of unenforceable federal tax liens include the expiration of the statute for collection or a discharge in bankruptcy. A federal tax lien is automatically released after 10 years if the IRS failed to file another notice.
Tax accountant: This professional tax service assists in the following tasks: 1) preparation of tax returns, 2) tax planning for individuals and businesses, and 3) gift and estate planning.
Tax advisor: This financial expert performs complex taxation tasks including 1) audit support, 2) tax planning, 3) preparation and review of high-risk tax returns, 4) analysis of returns for deductions, 5) tax compliance, 6) tax accounting, 7) correspondence with the IRS. Tax advisors may be tax attorneys, CPAs, accountants, or financial advisors.
Tax amnesty: This tax relief program aims to recoup as many back taxes as possible in a brief period of time, typically two or three months. Taxpayers who apply for tax amnesty are granted the opportunity to file late returns and pay back taxes in return for forgiveness of tax debts and reduced or waived penalties. To be eligible for the latter, defaulting taxpayers must pay the tax bill in its entirety by the state tax amnesty program's deadline.
Tax Counseling for the Elderly (TCE): This organization provides free tax assistance to the elderly by helping them with their federal income tax returns and offering them tax counseling and technical assistance with e-filing.
Tax debt forgiveness: Taxpayers may avail themselves of four different tax debt forgiveness programs: 1) "uncollectible status" for individuals who lack the ability to pay; 2) bankruptcy, which offers debtors a fresh start; 3) offer-in-compromise, in which debtors pay cents for tax dollars that are due, and 4) installment plan.
Tax deduction: This refers to expenses that taxpayers may deduct from their adjusted gross income and that lower their taxable income and consequently the tax to be paid. Taxpayers may choose to take the standard deduction or to itemize their deductions. There are deductions for individuals, businesses, spouses, dependents, and heads of households. Examples of tax deductions include 1) depreciating business assets, 2) office expenses, 3) interest on loans such as equity loans, 4) educational expenses, 5) moving expenses, 6) capital losses, and 7) business travel expenses.
Tax deferral: This involves the payment of taxes at a future date for investment-producing income, such as 401k plans and IRAs, that is earned in the current year. Taxes are deferred until the taxpayer withdraws the funds from his or her investment account.
Tax penalty: This is imposed on taxpayers to ensure that they comply with their tax obligations. Tax penalties are computed on the basis of the amount owed and target those who are late in their payments to the IRS, disregarded IRS rules and regulations, understated their income tax, engaged in fraud, or who filed late. The three types of tax penalties are 1) interest, 2) penalty for failure to pay, and 3) penalty for failure to file.
Tax preparer: This professional typically performs the following tasks: 1) preparation of tax returns for small businesses and individuals, 2) calculation of overpaid or due taxes, 3) minimization of clients' taxes by applying credits, deductions, and adjustments, and 4) assisting taxpayers to complete their tax forms accurately.
Tax rate: This represents the percentage of income that an individual or business paid as tax. Tax rates differ depending on the taxpayer's level of income.
Turbo Tax: This software company simplifies tax preparation for individuals, small businesses, and accountants, and it offers e-filing, as well audit, income tax and technical support. Users may complete their tax returns by answering simple questions and consulting answers to commonly-asked questions. Turbo Tax tracks applicable credits and deductions to ensure that taxpayers take advantage of all tax savings.
Volunteer Income Tax Assistance Program (VITA): This IRS program extends free assistance in tax preparation to taxpayers in the low to middle income bracket (usually an income of up to $40,000). Most VITA sites offer free e-filing. This program is offered at convenient locations such as libraries, shopping centers, schools, and community centers.
Tax Exact Online: This software specializes in online tax return preparation and e-filing for state and federal income taxes. Taxpayers who utilize Tax Exact Online maximize their tax refund and obtain it quickly.
Tax levy: This constitutes a legal seizure of a delinquent taxpayer's personal or real property that he or she has an interest in or owns. The IRS may perform a levy only after the following requirements are satisfied: 1) assessing the tax and sending the taxpayer a Notice and Demand for Payment; 2) taxpayer's refusal or failure to pay the tax; and 3) a Final Notice of Intent to Levy and notice of taxpayer's right to a hearing was sent out at least 30 days preceding the levy.
Taxpayer Advocate Service: This IRS program offers assistance to taxpayers who are experiencing financial hardship and have been unable to resolve their tax issues through regular channels. The Taxpayer Advocate Service vouches on behalf of taxpayers by defending their interests and addressing their concerns before the INS.
Tax preparation services: This involves the preparation of state and federal income taxes, refund loans, audit assistance, electronic filing, and a free review of income tax returns. Tax preparation services enable taxpayers to maximize their refunds and minimize their taxes.
Tax refund: This consists of the amount that the federal government reimburses taxpayers who overpaid their taxes.