Tax season can be a stressful time for many. With all the paperwork and numbers involved, it’s easy to feel overwhelmed. And what happens if, after crunching all those numbers, you discover you owe more than you can pay? It’s a situation that would fill anyone with dread.
Often, when we think of the Internal Revenue Service (IRS), we imagine a powerful, unforgiving entity that we’d rather not cross paths with. But contrary to popular belief, the IRS is not the boogeyman. In fact, the IRS has programs in place to help taxpayers who are unable to pay their tax debt in full.
Here are five steps to take if you find yourself in this situation.
Consider The IRS Tax Program
First and foremost, consider enrolling in the IRS tax program. The IRS Fresh Start Program, for instance, is designed to make it easier for taxpayers to pay back taxes and avoid a lien or levy. Under this program, taxpayers can enter into an installment agreement without providing a financial statement or verification if their tax debt is below a certain threshold.
Alternatively, you may qualify for an Offer in Compromise (OIC), which allows you to settle your tax debt for less than the full amount you owe.
Don’t Ignore The Notice
If you can’t pay your taxes, it’s crucial that you don’t ignore the situation. The IRS will send out a notice if you owe taxes, and it’s important to respond promptly. Avoidance will only lead to penalties and interest, which will increase your debt.
Open communication with the IRS shows your intent to resolve the debt, which can lead to more flexible solutions.
File On Time, Pay As Much As You Can
Even if you can’t pay the full amount, it’s vital to file your tax return on time. Filing late can result in a failure-to-file penalty, which can be hefty. Pay as much as you can when you file your return to limit interest and penalties.
Remember, the IRS is more lenient with those who show an effort to pay their debt.
Request A Payment Plan
If you’re unable to pay your taxes in full, you can request a payment plan. The IRS offers short-term (120 days or less) and long-term (more than 120 days) payment plans.
While there are setup fees associated with these plans, they are generally much less than the combined penalties and interest for not paying at all.
Consult A Tax Professional
While navigating tax issues can be overwhelming, you don’t have to do it alone. A tax professional can help you understand your options and negotiate with the IRS on your behalf. They can assist you with paperwork, advise you on the best course of action based on your specific circumstances, and potentially save you a significant amount of money.
Consider A Temporarily Delayed Collection
If the IRS determines that you’re unable to pay any of your tax debt due to financial hardship, they may agree to delay collection until your financial condition improves. This is known as “currently not collectible” status.
During this period, the IRS will temporarily stop trying to collect the tax debt from you. However, it’s important to note that the tax debt isn’t forgiven, and penalties and interest will still accrue. In addition, the IRS may file a federal tax lien against you during this time.
While this isn’t a permanent solution, it can provide temporary relief if you’re facing significant financial hardship. But again, professional advice is crucial here, as there are long-term implications that must be carefully considered.
In Conclusion
While owing money to the IRS can be a daunting prospect, remember that the IRS is not the boogeyman. They have systems in place to help taxpayers in tough situations. Consider the IRS tax program, respond promptly to any notices, file on time, pay as much as you can, set up a payment plan, and consult a tax professional for help.
Each of these steps will demonstrate to the IRS your intention to settle your debt. This not only alleviates potential added stress and penalties but can also create a more manageable situation for you as you navigate your financial landscape.
