Financial hardship can strike anyone at any time. Whether it’s due to unforeseen medical expenses, job loss, or any other emergency, navigating these challenging waters requires a combination of careful planning, strategic thinking, and knowledge of the resources available to you. One such resource is the IRS hardship program. Coupled with effective cash flow management, it can be the lifeline you need to stay afloat during tough times.
Here’s a look at some strategies you can employ.
1. Understand The IRS Hardship Program
The IRS recognizes that there are genuine situations where individuals might not be in a position to pay their taxes. As a result, they’ve established what’s known as the “hardship program” to help such taxpayers. Before diving into how this program can benefit you, it’s crucial to understand its parameters and the nuances of the hardship program eligibility.
At its core, the IRS considers you for this program based on your ability to pay. If the collection of owed taxes would cause you significant financial hardship, meaning you’d be left unable to meet your basic living expenses, you might be eligible. The IRS will typically require a detailed financial statement from you to ascertain this.
If you qualify for the program, the IRS might temporarily delay collection activities. It’s worth noting that while the collection is halted, the tax debt will continue to accrue penalties and interest.
The Offer in Compromise (OIC) is another provision under the hardship umbrella where you can settle your tax debt for less than the full amount owed, provided you meet certain criteria.
2. Adjust Your Budget Immediately
One of the first lines of defense against financial hardship is revisiting and adjusting your budget. If you haven’t already, create a budget that lists all your income sources and monthly expenses.
Look for non-essential items you can cut or reduce. This doesn’t mean depriving yourself completely, but maybe dining out less or cutting back on subscription services temporarily.
3. Prioritize Essential Payments
In times of financial strain, prioritizing payments becomes crucial. Essentials such as mortgage/rent, utilities, groceries, and insurance should take precedence.
Remember, while missing a luxury subscription might be inconvenient, missing a mortgage payment can have more serious repercussions.
4. Negotiate With Creditors
When facing hardship, many make the mistake of hiding from their creditors. Instead, proactively communicate your situation to them. Many creditors have internal hardship programs or can offer temporary relief options like lower interest rates or payment plans.
5. Set Up An Emergency Fund
While this might seem counterintuitive during hardship, even a small amount set aside can provide a buffer in times of unexpected expenses. Start small and add to it when you can. This can provide immense psychological relief knowing there’s a safety net.
6. Diversify Your Income Streams
Consider finding additional sources of income. Freelancing, part-time jobs, or even selling unwanted items can provide a boost to your cash flow. The gig economy offers various opportunities, from ridesharing to tutoring, that can be tailored to your skills and availability.
7. Be Wary Of High-Interest Debt
While it might be tempting to rely on credit cards or payday loans, these often come with exorbitant interest rates that can compound your financial woes. Instead, explore personal loans or borrow from friends and family, ensuring you communicate a clear plan for repayment.
8. Invest In Financial Education
Equip yourself with knowledge. There are many free resources online that offer guidance on budgeting, investing, and managing debt. The more informed you are, the better decisions you’ll make.
9. Reassess Regularly
Your financial situation, especially during hardship, isn’t static. It’s essential to revisit and adjust your strategies as your circumstances change. This dynamic approach allows you to respond promptly to challenges and opportunities alike.
10. Seek Professional Guidance
Sometimes, it’s worth consulting with a financial advisor or tax professional. They can provide tailored advice, help you navigate complex scenarios, and possibly introduce you to resources or strategies you weren’t aware of.
Financial hardship can be daunting, but it’s not insurmountable. By understanding the tools at your disposal, like the IRS hardship program, and coupling them with effective cash flow management, you can weather the storm.
Remember, resilience and adaptability, combined with informed decision-making, can set the foundation for a stronger financial future.