If you’ve prepared your taxes and you owe Uncle Sam, don’t make the mistake of not submitting your federal tax return simply because you’ve got a hefty tax bill.
A failure to file your taxes will just compound your problems and put you even further in the financial hole.
After all, the IRS can impose stiff penalties – up to 25% of what’s owed – on those who don’t file a 1040 tax return.
So rather than stick your head in the sand about your tax issues, work proactively to solve your tax problems and use of the following tried and true methods for dealing with the IRS.
Here are 5 good solutions when you can’t pay your taxes.
Pay with a credit card
If you have a low-interest credit card, or preferably a card with a 0% rate, you can use that card to pay off your federal tax debt. There is a processing fee of about 2% to pay your tax bill online with a credit card. Still, it may give you peace of mind to simply pay your taxes by the due date and put the issue behind you.
Get four months extra time to pay
Many people don’t realize that the IRS will give you up to 4 months – 120 days, to be exact – to pay a federal tax bill with no additional processing fees due. You can get this extra time just by completing an IRS Online Payment Agreement or by calling the IRS at 800-829-1040.
Sign up for an online payment plan
If four months isn’t enough time to pay off your tax bill, how about four years – or even six years? Well, the IRS offers taxpayers up to six years – 72 months – to repay federal taxes. You don’t even have to talk to an IRS agent. You can get approved for this repayment plan through a fast and easy online payment agreement. One caveat: Your total tax debt must be $50,000 or less in order to qualify.
Get an installment agreement for very large tax debts
What if your tax debt exceeds $50,000? Believe it or not, the IRS will still work out a short-term payment plan with you. In this case, if your tax debt is more than $50,000 but less than $100,000, you can also have an installment agreement. What’s the catch? You’ll also have to give the IRS more specifics about your finances – such as a detailed listing of your assets and debts. This payment plan also requires you to fill out IRS Form 433-D, Installment Agreement.
Seek an offer in compromise
Let’s assume you have a large tax debt of any size that you’re simply unable to pay given your current circumstances. Maybe you’ve been out of work for a long time, you have recently filed for bankruptcy, you’re retired or you have other large debts, like huge medical bills. If you are facing dire financial conditions, you may qualify for an offer in compromise with the IRS. That’s where the feds wipe out some or all of your tax debt because it’s basically uncollectible and you just can’t pay.
As you can see, you do have options when it comes to owing the IRS.
It’s not necessarily pleasant to deal with a creditor like the federal government, which has the power to put a lien or your property, seize your assets or garnish your wages if you don’t pay what you owe.
But you’re not exactly powerless in this situation either.
Just take a deep breath, don’t panic or ignore your tax obligations, and use one of the strategies above to start chipping away at your IRS debt.
Know the Facts
One last tip: Don’t go into the depression zone or get stricken with fear because you’re convinced the IRS is going to come after you or take everything you own.
While it is true that the IRS can legally seize many of your assets, including your income, it’s also the case that the IRS can’t just grab your whole paycheck – even if you do owe taxes. Federal guidelines allow you to keep a certain amount of income that’s exempt from any potential wage garnishment.
Additionally, any asset seizure won’t just come out of the blue.
You must be sent a Notice of Intent to Levy before the IRS seizes your property. After that, you have 30 days to contest the seizure before an appeals officer. During that 30-day period, all IRS actions will effectively be put on hold or frozen, giving you additional time to negotiate further with the IRS.