Owe Taxes? Can t Pay Your Tax Debt?
Do you have financial difficulties during these tough economic times? If so, then the last thing you need is to add the IRS to your list of headaches.
So you ve just prepared your taxes–or you have not started working on your tax return, but you know with certainty that you will have to pay taxes and that you cannot afford to pay the total amount due on time. Want to remove that constant stress hanging over your head? Luckily, the IRS has already taken measures to help taxpayers in your exact situation. Here is some information for getting yourself in the clear:
What Do I Do If I Owe Taxes But Don t Have the Money to Pay?
First, don t panic! Second, don t delay the time to file your tax return! You should always file your return on time to minimize your tax penalties. Even if you can pay nothing, you should file on time to avoid a greater tax penalty .
Then, take a deep breath and try to figure out how much of your tax debt you can actually afford to pay now. Likewise, you should always pay as much as you can in order to minimize penalties, because your penalties will be based on the amount you still owe to the IRS. Consider these direct tax payment options if you have all or some of the funds to pay the taxes you owe.
I Filed a Tax Extension on Time-Will That Extend My Time to Pay the Taxes I Owe?
No, a tax extension does not give you more time to pay any taxes owed. It only extends the deadline for filing your return!
How Can I Pay Off My Tax Debts?
The IRS recommends the following tips for paying off tax debts:
- Pay Your Tax Bill: If you receive a bill from the IRS, you ll save money by paying your taxes owed as soon as you can. If you can t pay them all at once, you should pay as much as you can. That way, you ll reduce your penalties and interest for late payment.
- Use IRS Direct Pay: The IRS recommends that the best way to pay taxes is by using the IRS Direct Pay tool. It s a safe, easy, and free way to pay from your savings or checking account. The tool walks you through five steps to pay your taxes online. You can find the tool on the IRS website.
- Get a Short-Term Extension to Pay: If you can pay all your taxes in 120 days or less, you may qualify for a short-term extension to pay from the IRS. You can apply for a payment extension online via the IRS website or by calling 1-800-829-1040 (if you received a bill from the IRS, you can call the phone number listed on it). Usually, there s no set-up fee for a short-term extension.
- Apply For a Monthly Payment Plan: If you cannot scrape up the funds to pay your amount due in full when you file your return, you can pay off your debt over time by applying for an installment agreement. You may qualify for an online installment payment agreement with the IRS as long as you owe $50,000 or less. The IRS states that a direct debit payment plan is the best option because this plan is a lower-cost, hassle-free way to pay, and the set-up fee is less than other payment plans. In addition, you don t have to worry about reminders, missed payments, or checks to write and mail. You can apply for the monthly payment plan via the IRS website or by completing and mailing Form 9465, Installment Agreement Request.
- Consider an Offer in Compromise: You can settle your tax debt for less than the full amount that you owe by applying for an offer in compromise (OIC) with the IRS. This may be an option for you if you owe a large amount of tax, do not believe you will ever be able to pay off the entire amount, or if making a full payment will cause a financial hardship. To see if you qualify for an OIC, you can use the IRS Pre-Qualifier tool on their website.
Are There Ways I Can Obtain Money To Pay My Taxes?
Yes, there are options to get money through other means so you can pay any taxes owed. However, this is only a good idea if any interest you end up paying is less than the interest and penalties the IRS will charge you.
Whether you owe hundreds or thousands, you should really ask yourself, Can I obtain this money? Are you able to cash out your paid time off from work? Have you thought about using your credit card or tapping your savings account? You might be able to borrow against your retirement account. Here are some options to consider:
- Liquidate savings accounts, stocks, bonds, etc.
- Sell assets (vehicle, real estate, etc.)
- Borrow the money (bank loan, home equity loan, etc.)
- Charge your tax debt on a credit card (be aware that the processing company may charge you a convenience fee based on the amount of your payment)
You should also consider setting up a payment plan with the IRS so you can give yourself time to obtain money and submit payments when they re due.
How Can I Avoid Owing Taxes in the Future?
The best way to avoid owing taxes when you file your tax return is to carefully manage your income tax withholding or estimated tax payments throughout the year. Here are some steps you can take:
- Find out what your tax withholding should be by using an IRS tax withholding calculator
- Withhold more tax from your paycheck by submitting a new Form W-4 to your employer
- Withhold more tax from your pension payments by submitting a new Form W-4P to the payer
- If you make estimated tax payments, increase them by submitting a new Form 1040-ES efile it to the IRS
See Publication 505 – Tax Withholding and Estimated Tax for details on tax withholding.
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