If you are among the approximately 8 million taxpayers who owe money on their taxes each year, tax season can be stressful. It is especially worrying if you don’t have the money required to pay off your taxes due to poor budgeting, a recent job loss or another financial hardship. Fortunately, there are several options available to make the payoff process easier.
Depending on how much money you owe and how long you need to come up with the cash, there are a few different options for working with the IRS. While short-term solutions are usually the best option to avoid interest and heavy fines, there are also long-term options available if you are in a real bind.
File on Time and Wait for the Bill
If you have a short-term cash flow problem and simply need a few more weeks to pay off the balance, the most important thing to do is file your taxes by the deadline. Many benefits come with filing a return on time, even if you can’t pay off the balance right away. If you don’t file by the deadline, you can expect a 5% monthly late fee. If you haven’t filed within two months, the late penalty is your entire tax balance or $435, whichever is less.
File your return and wait to receive a notice detailing how much you owe. The IRS sends bills out to people who owe taxes a few weeks after the deadline. Waiting for the bill to arrive in the mail will give you a few extra weeks to come up with the funds. However, you should only use this strategy if you are certain you can pay off the amount owed within 30 days of the filing deadline. You can expect a 0.5% monthly fee for unpaid balances. While this might not seem like a large penalty, it can add up if you don’t pay off the balance immediately.
File an Extension
If you are unable to pay by the deadline, but you are confident you can pay within four months, a payment extension may be an option. The IRS typically offers 120-day payment extensions to qualified taxpayers. While there is no fee to apply for an extension, you are still subject to penalties and interest. You will need to pay a minimum monthly penalty equal to 0.5% of your entire balance.
The IRS does offer a Fresh Start Program that enables qualified taxpayers to receive concessions on interest and fees. You can apply for an extension by calling the IRS at 1-800-829-1040 or visiting the Online Payment Agreement portal.
Request a Monthly Installment Plan
Applying for a monthly installment plan is a great option for those that owe back taxes but can pay off their balance within a set period of time. There are two ways to get on a monthly installment plan. You can include a Form 9465 with your taxes when you file. You can also submit an online payment plan application on Irs.gov after you submit your return.
There are a few important things to know before setting up an installment agreement. You are not eligible for a monthly installment plan if you have neglected to file your taxes in previous years. Therefore, make sure you’re filing your taxes consistently each year. You will be given up to 72 months to pay off your tax balance once your installment agreement is approved. However, this is not an option if you owe more than $50,000 in combined taxes and interest.
Submit an Offer in Compromise
If you simply cannot afford to pay the taxes you owe, requesting an offer in compromise might be a good option. Essentially, you make an offer to the IRS and they can accept or decline the offer. When deciding whether or not to accept your offer, the IRS considers the following:
- Assets
- Income
- Ability to pay
- Expenses
You will need to pay an application fee of $185 when you send in your application. This fee can be waived, however, if you meet certain qualifications. Be prepared to pay 20% of the overall offer upfront. The rest of the amount can be paid off in monthly installments. If you fail to pay the reduced amount, the IRS can sue you to recoup the original tax debt amount.
General Tax Payment Guidelines
Whether you owe $50 or $50,000 in taxes, there are a few guidelines you should follow when dealing with the IRS. Read below for some general tips:
- Be straightforward with the IRS: Don’t think your debt problem will go away if you simply avoid the IRS. The IRS is usually more likely to work with individuals who are upfront about their inability to meet all of their financial obligations. Talk to the IRS before the tax filing deadline and be honest during the entire process.
- Always file your annual return: Many people will not file their return if they can’t pay off their tax balance. This is not a good idea. If you don’t file your returns, the IRS will be less likely to work with you on past due balances and you will not be eligible for installment agreements. You may also be subject to legal ramifications if you fail to file a return.
- Seek help: If you have a particularly complicated tax situation or you are feeling overwhelmed, seek the advice of a tax professional. A professional will be able to advise you on the best course of action to take.
- Pay a small amount: Even if you can’t pay your whole balance, send in a small payment if it is financially feasible. This will show the IRS that you are making a good faith effort to settle your taxes and they may be more willing to work with you.
Contact Tax Resolve Today for Professional Advice
If you have IRS tax debt or you have unfiled tax returns and you want advice from a professional, contact Resolve Tax today. Tax Resolve is experienced in a multitude of tax issues including wage garnishment debt negotiation. All services are affordable and confidential. Contact Tax Resolve today and take back your peace of mind.
Sources:
https://www.daveramsey.com/blog/cant-afford-to-pay-taxes
https://wallethub.com/edu/t/what-if-i-cant-pay-my-taxes/8031/
https://money.usnews.com/money/personal-finance/taxes/articles/what-to-do-if-you-cant-pay-your-taxes
https://www.irs.gov/payments/online-payment-agreement-application
