What You Should Know About Paying Off Debts and Filing Your Returns
Think that filing your taxes is nothing more than a chance to get a big check in the mail? Guess again, because this time of year is a huge windfall for an unlikely kind of business: debt collectors.
Collection agencies love few things more than tax season. According to many observers, the most profitable time of year for these businesses actually occurs in the months around the April filing date. Here's why and what it means for you as a creditor or debtor.
Taxes and Debt
It's not hard to understand the connection between tax season and debt collection. When people receive refunds, they're highly likely to use the extra cash to pay off their existing debts.
There are a couple of motivating factors behind these tendencies. On the one hand, debt companies know that consumers have more cash than usual at this time, so they may be more active in reaching out to offer resolution options. Also, many consumers initiate resolution during these times because they know that they have the financial resources to deal with debt and that it's better to do so while they can.
The Downsides of the Trend
Of course, tax-season debt resolution isn't all smiles and rainbows. For every collector that's willing to work with their clients to help them out, there are those who refuse to negotiate because they think that they can get more from debtors. On the other side, some consumers may misinterpret their collectors' eagerness to resolve debt as meaning that they'll take whatever they can get.
Options like debt settlement, where people pay a percentage of what they owe to resolve their debt, also have pros and cons. While they make it easier for consumers to take care of unpaid accounts, they also expose debtors to increased taxation. Since the IRS treats canceled debts as income, taxpayers have to claim them, which can bite into their refunds. Still, it may be possible to work around this, especially for early filers who wait to resolve their claims until after their prior year's returns have been accepted.
Finding a Balance
No matter what time of year it is, debt resolution is a joint effort between creditors and debtors. Unfortunately, many consumers are unaware of the links between their unpaid debts and their tax burdens. For collection agencies, being able to educate people by laying these kinds of facts out on the table might make it far easier to resolve debts and gain consumer trust.
Are you prepared to collect overdue accounts more effectively this coming tax season? Learn how to improve your practices by visiting us at L J Ross Associates.