Hardship

• Contact the IRS immediately if you cannot pay your taxes, especially if it is due to real hardship. The government would much rather get the cash from you rather than throw you in prison. Explain in detail why you cannot pay. Once the deadline for payment has passed, the IRS will send you a bill. Interest will begin to accrue from the deadline date that you missed. If you can prove substantial economic hardship, the IRS will suspend collections for a time, but interest will continue to accumulate.
  
  

Collection

• There are two methods of collection. First, the government will place a tax lien on assets. A lien is a legal claim that creates a surety for a debt. If this is insufficient, the IRS will go to the next step, which is issuing a levy. A levy is different from a lien in that while a lien is about laying claim to collateral, a levy is the actual seizing of an asset. Assets can be businesses, equipment, property or bank accounts.
  
  

Offer in Compromise

• An offer in compromise is a specific method of collection that deals with tax debt that is doubtful. The IRS faces circumstances where a specific debt is deemed noncollectable as is. The IRS will entertain offers of payment short of the total amount if the agency is doubtful that the tax is owed, or that the debt is too hard to collect. Another cause for the offer in compromise is if collections will destroy the financial health of the debtor. The debtor can get the IRS off his back by offering a smaller amount. Offers must be sent to the IRS with a nonrefundable 20 percent of the tax owed.
  
  

Home Business

• The home business deduction is about using a part of one's home as a business. The expenses specific to that part of the house can be written off, including things like mortgage interest and utilities. You must figure this as a certain square footage used exclusively for business as a portion of the entire size of the house. Only this portion alone can be written off. You take your mortgage payments and utilities and write off a percentage equal to the portion of your home used for business for the year. Keep in mind that this part of the house can be used only for business. Dual-use areas cannot be written off.
  
  

Bad Debt

• In IRS-speak, a bad debt is one that cannot be collected. If a debt cannot be repaid under any normal circumstances, then this amount can be written off your taxable income as a short-term capital loss. One important caveat is that you must have declared the loan that now cannot be repaid on an earlier tax form that you must reference in your claim.