Tax returns are due on April 17th. That’s tomorrow for those of you who are keeping track! Some of you are basking in the glow of a newly minted tax refund, while others are wondering how they’re going to pay good old Uncle Sam the money that they owe.
In this economy a lot of people are finding that they just don’t have the extra money laying around to pay their normal bills, much less a large tax bill. The reasons for that can be anything from not withholding enough money from their paychecks to self employment income that was higher than expected.
Whatever the reasons for owing taxes, what are you supposed to do if you can’t pay?
File Your Taxes Anyway
Sure, you may owe more money than you can pay, but not filing your taxes isn’t going to help you in any way. In fact, not filing your taxes in time can mean penalties for failure to file. Plus, if you don’t file the IRS will end up preparing your return for you. They’re not going to be as willing to search out deductions and exemptions that you might be entitled to. Plus, when you get the bill from them it’s going to have your taxes due as well as penalties and interest! That can increase your tax bill by 20% or even more!
If you can’t pay all of your taxes due, still file and pay as much as possible to reduce penalties and interest. Again, even if you file an extension, you’ll still need to pay your taxes on April 15th.
What Are My Options If I Can’t Pay Right Away?
You have options open to you if you can’t pay your bill before the April 15th deadline:
- Extension of time to pay: The IRS can give you an extension from 30 to 120 days. The penalties and interest you would have to pay through an extension are usually less than if you ask for an installment plan.
- Installment agreement: Ask the IRS for a payment plan or installment agreement that will allow you to pay your taxes in monthly payments. If you owe $25,000 or less in combined tax, penalties and interest, you can complete the Online Payment Agreement (OPA) on the IRS Web site. If you owe more than $25,000, you may still qualify for an installment agreement, but you’ll be required to complete a Collection Information Statement (CIS) so the IRS can determine the amount you can pay based on your monthly expenses.
- Use Savings Or Take Out A Loan: AInstead of doing an installment plan or asking for an extension, it might be a better option to take some money out of savings or take out a home equity loan to pay off your tax debt. Interest and penalties will go up while you make your payments on an IRS payment plan, so the interest you pay on a loan or credit card may be lower than the interest and penalties imposed by the IRS. I never like taking on new debt personally, so for me if I had the savings I would use those first. (Although if you had savings paying your tax bill might not be as much of a problem)
- Offer in compromise: An offer in compromise is an agreement between you and the IRS to settle your tax debt for less than you owe. Generally, an offer in compromise will only be accepted if the IRS thinks that it’s doubtful you’ll be able to pay the debt through other methods, there is question about the tax assessed being correct, or if you have special circumstances or extreme hardship.
If you decide to bury your head in the sand and not pay your tax bill, it’s not going to go away. The IRS will file a Notice of Federal Tax Lien that can ruin your credit. They can also seize assets and take funds from bank accounts and paychecks to satisfy the tax debt. You don’t want to mess around with the IRS (or the KGB as Dave Ramsey likes to call it)
Plan Ahead For Next Year
Finding out that you owe money at the end of the year is never a pleasant thing, but it is avoidable in most cases. To make sure it doesn’t happen again next year, remember to check these things:
- Make sure you report the correct number of exemptions on your W-4 form. Your employer doesn’t know your complete situation, so your withholding may not be correct. Make sure that it is, and adjust your withholding if necessary.
- Make quarterly estimated tax payments to cover any additional income for which tax isn’t withheld.
- Re-check your withholdings a couple times throughout the year to make sure you’re on track to not owe the IRS (or to get a huge refund).
- If you need to file for an extension, do it early! You can get up to a 6 month extension! (remember, any taxes due are still due on April 15th.)
Have you ever found yourself in a situation where you weren’t able to pay a tax bill? How did you get yourself out of that situation? Tell us about it in the comments.
The IRS has become suddenly more friendly to deal with. The key is to call them proactively and not wait for them to come a calling for you.
The agents are flexible, friendly and have impressed me a lot in the past year.
Just think twice before putting taxes on a credit card. Better to owe the IRS since it will be at lower interest rate than a jacked up credit card interest.
Steve
Get Out of Debt Guys last blog post..Advertisements About Eliminating IRS Debt Not Honest
I agree with Get Out of Debt Guy. The IRS somehow is being more friendly to clients now, they’re becoming less of a nightmare and more of actual help when a family member of mine was trying to fix her taxes. I guess when they put off a friendlier vibe, people aren’t so stubborn with paying on time anymore.
Imees last blog post..Biden, Vilsack Announce Affordable Housing Grants Under Obama’s Housing Plan
Hopefully nobody reading this blog ends up not being able to pay their taxes. But, if you do, then I believe being upfront and honest can make dealing with the IRS a little easier. You may need a little luck to get the employee who is willing to take the time to listen and help you, I still haven’t seen the “friendly IRS” referenced above for basic questions on forms.
I filed my taxes for this year and looked at last years and realised that I messed up on last years BADLY… Somehow a zero is missing in the amount of income and so instead of 12,000 it was 1200. I was getting a tiny bit more from last years spousal than this year… I owe money for both years and I can’t afford to pay it. All I get is spousal support and not much at that. I am new at this, never handled the money or taxes when I was married so I didn’t save any money or put any away for taxes. I didn’t think they taxed spousal. It comes from my x’s social security. Big mistake on my part… So now I don’t know what to do. I am barely surviving on 900 (what I get now) a month as it is… I need to file bankruptcy next year (have to wait 8 years from when my x filed for us last time)… I feel financially stuck. I don’t work, have never worked. I’m disabled.. I am living with family because I can’t make it on my own… HELP!!!!! I live in Oregon. So who do i contact for this? Federal and state? Is there a way to have this debt written off?? It is an extreme hardship…
What a great list of suggestions. I couldn’t pay one year in high school. To be fair, I was pretty clueless about taxes back then, luckily my parents loaned me the money (it wasn’t that much) and I paid them back in a couple of weeks.
This year has been the worst I have every had; and at 59 years old, that’s saying a lot. I have been unemployed since early February, so I took an offer from my niece to do some work out of my house for her and she would supply me with a 1099-MISC. Well after being blessed with some money to keep my wife and I afloat for a little while, $11000. income for the year was better than nothing!
We filed a 1040 as always, and with the standard deductions we expected a small refund to see us through until I can secure a job (as a senior, it’s next to impossible) only now come to find out from the IRS, that we owe nearly $1,500. in self-employment taxes!!! Now Not only do we not get Any Refund, but we owe the 1500. There’s NO WAY we can afford to send a payment.
Praying for God to Help Us… (before the Government Kills Us.)
The IRS says I didnt file in 2009 and say I didnt report unemployment income in 2013. I am just finding out in 2015 on the 2009 taxes and just recently 2016 about the 2013 issue. I can’t find anything in my turbo tax file which I used in 2013. I have no clue if I used turbo tax in 2009 or used someone else. In 2010 I was hurt bad and had a back surgery and put on disability. My recovery was long, painful, and I was on lots of medicine and went through 6 different anti anxiety and depression meds. I think I owe somewhere around 6k. I have tried to go back to work but its not working out. I have been in touch with them. I was supposed to call them last month but haven’t. I know I need to. Will they settle with me or are they getting ready to take something from me? I don’t know.