Tax season is just getting started. If you have to pay, you might be wondering what your options are if you don’t have the money to do so. Don’t make the mistake of assuming nothing can be done. Taxes can be scary, but it’s important to stay calm and research each possible route thoroughly. If you’re unable to pay your tax debt, we’ve provided some strategies below to get you started.
You might be tempted to not file if you know you can’t pay, but you’ll only be hurting yourself by doing so. If you neglect to file your taxes, you’ll be subject to a failure-to-file penalty. This could amount to 5 percent of your unpaid tax bill each month and could go up to 25 percent. If you file your taxes without sending in a payment, you’ll still be charged a penalty, but it will only be 0.5 percent of your unpaid tax bill per month.
Paying something is better than paying nothing. If you can pay your full bill within 120 days, you might qualify for a full-payment agreement, which means you can make monthly payments to lower your debt. Interest and any applicable penalties will continue to build during this time, but you won’t be charged additional fees.
If you owe a sum that you cannot pay within 120 days, you might be able to negotiate an installment agreement, which is subject to application fees. Alternatively, you might be eligible for an “offer in compromise,” where the Internal Revenue Service (IRS) agrees to lower your debt. To qualify, you must meet specific qualifications and can show you’d suffer severe financial damage if you paid your debt in full.
If the IRS determines you cannot pay any of your debt, the government might elect to delay the collection time until your finances are in better condition. Should you be approved for a delay, keep in mind that interest will still accrue, and the government might file a lien against your property until you pay.
You have a few options at your disposal through which you can exchange your tax debt for another kind of debt that might be more manageable for you.
It never hurts to explain your situation to the IRS and ask for additional time. Depending on your circumstances, the agency might agree to briefly extend the deadline by which you’ll need to pay in full. If you can’t pay at all due to circumstances beyond your control, such as unemployment, let the IRS know. They’ll be willing to work with you. You can call the IRS at 1-800-829-1040 or any number included on one of its notices for more information.
This is the most drastic action, so don’t enter into it lightly. If you file for bankruptcy under certain conditions, your tax debt will be dissolved, but the headaches bankruptcy will cause you for years in the future will complicate your life. If you feel this is your only option, be sure to consult a tax lawyer to assist you in the process.
It’s tempting to hunker down and hide from problems such as debt, but you’ll only be hurting yourself in the future. Ignoring it can quickly land you in legal trouble, so it’s best to be proactive and take charge of the situation before it gets out of hand or happens again. Remember it’s always best for you to file your taxes on time and be upfront with the IRS about what you can pay and when.
If you’re struggling to manage your tax debt, get in touch with our team at Solvable. We can help you understand your options and provide reviews of reputable debt relief companies.