Calculation of your monthly disposable income is based on your monthly household income and expenses. Because of this, it is imperative, that you learn how to arrive at these values so you can calculate the Total Offer Amount that most realistically represents your financial situation.
In this context, it is worth clarifying that the total monthly income and expenses of your household includes the incomes earned by and the expenses incurred on account of all those who reside in your house, like your spouse or partner and your children.
Question: How do I calculate the total monthly household income for the offer in compromise?
Fortunately, form 656 features a comprehensive list of all the sources of income you may have. This includes wages, salaries and pension received by you and/or your spouse as well as any sum of money received as bonuses, commissions, or overtime.
Additional income includes:
- earnings from rent(s)
- business operations
- payments from partnership ventures
- interest and dividends on any investments
- social security (if appicable)
- unemployment & disability (if applicable)
- child support/alimony (if applicable)
Question: What about calculating monthly household expenses?
Section 5 of form 656 lists will list the number of areas you can mark as expenses. This includes:
- your rent and/or mortgage payments
- tax and insurance payments
- utilities (gas, water, electric, etc.)
In addition to these basic deductions, you should look at medical costs (not covered by insurance), car payments, and alimony (if applicable).
In this context, it is worth mentioning that when calculating your monthly household expenses, you can apply specific national standards while trying to end up at a realistic figure for your housing and transportation costs and those incurred to maintain your household goods. These standards are available from IRS charts and are applicable on the basis of your income and the number of individuals constituting your household. However, calculating the expenses based on these variables can be a tricky affair unless you are guided by an experienced tax consultant.