Filing Your Taxes & Can’t Pay? – 5 Options
Filing Your Taxes & Can’t Pay? 5 Options to Consider
If you’re certain you will be due a refund when tax time rolls around, chances are filing your taxes will be done before the due date. However, if you’re one of many who will owe the IRS, and you don’t have the money to cover the bill, it may be a different story.
A study was done last year to find the reason why many taxpayers failed to file their tax return by the extended filing date of July 15, 2020. It revealed that 24% of that group were sure they owed additional taxes, but they were not able to pay.
Another 18% had no idea if they would owe more money, but they were afraid they might and didn’t want to receive a bill from the IRS that they couldn’t pay. WOW!
Don’t ever do this. If you know you’re going to owe the IRS more money, file your tax return by the due date or get an extension to file. But don’t ignore the situation and wait for the IRS letter that will surely come.
Just like any other problem, not filing your taxes and hoping the IRS won’t notice, won’t make it go away. You need to meet it head-on, file your tax return on time, even if you have no money to pay the balance due.
If you are having problems in getting your tax return prepared, there are various free programs available.
- Tax Counseling for the Elderly
- Online tax filing vendors offer free tax filing
- IRS website offers free tax filing for those that qualify
If you’re delaying in filing your taxes because of concerns that you owe more taxes, there are options available to you for tax relief. The following 5 options may be available to you in getting tax debt help.
- Pay whatever amount that you can
Regardless of the amount that you may owe, always file your tax return on time, either by the normal due date, or by filing an extension. The extension gives you more time to file, but not more time to pay. Filing late or not at all will lead to some stiff penalties.
The IRS will charge you interest on the amount of unpaid taxes if you can’t pay the entire amount owed by the initial due date. But, if you can pay a part of it, the amount of interest will be less.
- Consider using an IRS plan for repayment
The IRS today is very agreeable to almost any reasonable payment plan. It’s basically an installment plan that lets you pay your tax bill over an extended period of time.
Just be aware, once you agree to a certain plan of repayment, it is not renegotiable. The IRS will allow a time period of up to a maximum of 72 months, so plan accordingly. Take the maximum period which will give you a lower monthly payment.
That way, you can always pay more, but if you get in a bind, you can’t pay less than the amount agreed to. If you do pay less, or miss a payment, the IRS will consider the agreement null and void and will begin other measures to collect.
When you enter into one of their payment plans, interest and penalties will continue to accrue. They have a few other fees too that have certain conditions. Not filing your taxes on time or not at all, has its set of penalties.
- You may qualify for an offer in compromise
An offer in compromise normally lets you settle the debt owed to the IRS for an amount lower than what you actually owe. A major benefit, besides paying less, is that you won’t be getting collection calls and letters from the IRS.
You should be aware, though, that making an application for an offer in compromise is a long process, and encompasses an awful lot of documentation. You basically have to prove to the IRS that you can’t afford to pay the amount you owe.
There are fees involved too, such as an application fee and a payment towards the balance owed. Even if the IRS agrees to reduce the amount that you owe, these fees must be paid. Also, be aware that the IRS rejects most of the offers in compromise that it gets.
If your financial situation qualifies you for the low-income certification, the IRS may waive the application fee and/or the initial payment made. You also won’t be required to make any monthly payments while they are considering your application.
- Request a “currently not collectible” status
If you find that you’re not able to pay the taxes you owe, the IRS will allow you to request that your account be placed in a status “currently not collectible”. This is not a forgiveness of your tax liability, but a temporary delay in their collection efforts.
To be placed in this category, you need to complete certain IRS forms that show your income, monthly expenses, and also your assets and all liabilities. If approved, the IRS will stop their collection activities, but in certain situations, they may place a lien against you to prevent assets from being disposed of. Filing your taxes is very important.
- Consult with a tax professional
We highly recommend that before you undertake any type of action with the IRS, to consult with an experienced and competent tax specialist. Most taxpayers aren’t aware of the various options available to you.
Most assume that an installment agreement is all that’s available to them. Many others, who may be in dire financial shape and not able to pay anything, throw up their hands and ignore the IRS collection efforts. Don’t ever do this.
If you aren’t able to hire a tax professional, there are some free sources that may be able to help. The Taxpayer Advocate Office is a good free service. Some other tax relief sources can be found here. Remember, however, to file a tax return on time even if you can’t pay. Filing your taxes on time will eliminate a failure to file penalty, which can be severe.
An accountant and tax preparer by profession, Gust’s true passion lies in his company blog titled “HBS Financial Group, Ltd.”. Through this venue, he not only tries to teach individuals about budgeting, money management, and taxation but he writes the majority of the articles as well.