Tax season is stressful for everyone. But it’s especially difficult for those of us who can’t afford to pay the IRS. Fortunately, there are several ways to make an unmanageable tax obligation easier to handle. Many aren’t all that expensive, either.
Here's what to do if you can't pay your taxes:
If a temporary cash-flow interruption is the cause of your inability to pay, you should still file your tax return on time and simply wait to receive a bill from the IRS. They notify people who have tax balances due, including interest and late fees, a few weeks after the April 18 filing deadline. It takes a bit of time to process the initial returns, after all.
The IRS currently charges a monthly fee equal to 0.5% of your unpaid tax balance, up to a maximum of 25%, if you do not pay by the deadline. That’s a fairly small price for a bit of extra time. Plus, if you can show cause for your late payment, the charges could be waived.
You should use this strategy only if you literally need two to three extra weeks to pay. It would take the IRS 10 days to process a request for an extension or payment plan, anyway. But it’s best not to get on the agency’s bad side.
That said, it’s worth reiterating the importance of filing a return on time no matter what. If you don’t, that 0.5% monthly late fee skyrockets to 5%. And if you don’t file within 60 days, the minimum late-filing penalty will be $435 or your entire tax balance, whichever is less.
The IRS offers 180-day payment extensions. You won’t need an installment agreement, but you will have to pay a monthly penalty equal to 0.5% of your balance (up to a maximum of 25%).
Qualifying individuals may be able to get fees and interest waived through the IRS Fresh Start initiative.
People who need more than four extra months to pay their taxes have several options, some of which are much more extreme than others. The key is to weigh the pros and cons of each as they relate to your particular situation.
Set up an Installment Agreement with the IRS: You can apply for the ability to pay off your tax obligation in up to 72 monthly payments. You can do so online if you’ve already filed your tax return or by completing one of two forms, depending on how much you owe. Use Form 9465 if you owe less than $50,000 (principal plus fees and interest) and Form 433-F if you owe more.Bear in mind that there’s a fee for setting up a payment plan. The amount varies based on how you apply (online vs. paper form) as well as your chosen payment method:
If your income is equal to or less than 250% of the applicable poverty guideline, you can use Form 13844 to request a reduced fee of $43.
It’s also worth noting that the IRS doesn’t usually attempt collections while an installment agreement application is being considered, when such an agreement is in effect, or for 30 days after an application has been rejected.
At the end of the day, it’s important to reiterate that trying to hide from the IRS is the worst way to handle an inability to pay. The IRS is much more likely to work with people who are upfront about their situation. And there are indeed a number of ways to buy yourself some extra time without doing too much damage to your bank account.
The exact route you should choose depends on how long it will take to come up with the cash.
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Source: wallethub
Alfredo Gaxiola has worked on numerous IRS problem cases and has successfully settled with the IRS to release liens on houses, bank accounts and wages and, if needed, setting a payment installment plan that is not burdensome for the client. He has conducted appeals before the U.S. Tax Court and obtained favorable resolutions in reducing the tax debt of his clients. Mr. Gaxiola served as Treasurer of Camara de Empresarios Latinos, one of the largest and strongest Hispanic organizations in the city of Houston. He has conducted financial and accounting seminars for the Houston Small Business Development Corporation, as well.
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