What Really Happens If You Can't Pay Your IRS Taxes?
So, you find yourself in a bit of a pickle and you can't pay your IRS or state taxes?
Don't sweat it! It's likely not the end of the world. Many IRS tax notices can be resolved by the individual taxpayer with a call or letter to the IRS. We've got some steps to help you navigate this situation with finesse and minimal stress.
Before we begin, if you find your situation is too much to tackle yourself, Kent County Tax Pros is happy to help. Book a free consultation to see if we're a good fit to help resolve your tax situation. Click the Book Now button to schedule.
Let's dive in!
Step 1: Keep Calm and File on Time
First things first, don't let the panic monster get the best of you. Even if you can't afford to pay your taxes right now, it's crucial to file your tax return by the regular deadline. Find yourself a seasoned tax professional, like an Enrolled Agent, who can work their magic and uncover any IRS tax credits or deductions that might lower your bill. Trust me, every dollar counts when you're facing the IRS!
Some folks think it's smarter to delay filing if they owe money, but that's a trap! Not filing or filing late can lead to penalties that make your situation even worse. Ouch! Remember, even if you submit your tax return in February or March, the actual payment isn't due until Tax Day. So, you might have a couple of months to scrounge up some extra cash or find clever ways to boost your income.
Oh, and let's address the elephant in the room: tax extensions. Sure, they give you more time to file, but they don't buy you extra time to pay. On Tax Day, the money's due,. If you pay late, you'll be stuck with interest and penalties. So, do yourself a favor and file that return on time!
Step 2: Pay What You Can
Now, I know money might be tight, but paying as much as you can by the tax deadline is a smart move. And hey, I'm not suggesting you sell your car (unless you're really desperate). But take a look around your house—chances are you've got some stuff lying around that you can sell for some extra dough. The more you pay upfront, the less you'll owe in penalties and interest. It's a win-win!
But hold up! If life throws you a curveball and you find yourself out of work, take a deep breath. Forget about that tax bill for a moment. Your focus should be on the essentials—food, utilities, shelter, and transportation. Take care of these "Four Walls" before worrying about Uncle Sam. Once your basic needs are covered, then you can allocate whatever you can towards your tax bill.
Step 3: Keep Paying and Talk to the IRS
After Tax Day comes and goes, you'll have a bit of a grace period before the IRS starts nudging you about the remaining taxes you owe. During this time, keep chipping away at the balance like a determined beaver building a dam. Your goal: pay it off before they come knocking on your door.
But hey, if you can't settle the bill within that timeframe, fear not! You can hop onto the IRS website and apply for a payment plan. Yes, you heard me right—online, without having to endure those dreaded hours of hold music. The IRS offers short-term payment plans (120 days or less) for bills under $100,000, and there are long-term monthly plans available for balances under $50,000. There might be a setup fee, but don't worry, it could be waived if you fall into the low-income category.
Step 4: Fix the Root of the Problem
Time to play detective and get to the bottom of why you found yourself in this unaffordable tax bill situation. Seek the guidance of a trustworthy tax expert who can help you analyze your situation and prevent a repeat performance. Maybe it means setting aside profits from a side hustle, making quarterly tax payments, or adjusting your paycheck withholding. Whatever the issue, a tax pro will be your superhero in spotting the problem and steering you in the right direction.
Oh, and a pro tip to save yourself some time and hassle: gather the necessary paperwork right from the start. Not sure what you need? No worries! Ask for our free tax preparation checklist and breeze through the process like a seasoned tax aficionado.
Paying Your Taxes Late
If life has dealt you a tough hand—maybe you're grappling with the loss of a loved one or a sudden job loss—don't lose hope just yet. You can ask the IRS to put your bill in a "currently not collectible" status, giving you some breathing room to sort things out. Just keep in mind that while you buy yourself more time, the pesky penalties and interest will continue piling up until you settle your bill in full.
There's also something called an offer in compromise (OIC) that you can explore. It allows you to settle your tax debt for less than what you actually owe. It's like bargaining with the IRS, offering them an amount you can pay right away, in hopes that they'll accept it and call it a day. But let's be real here—the odds of qualifying for an OIC aren't very high. They're about as good as finding a needle in a haystack. So, proceed with caution and consult a tax professional who specializes in OICs before going down that road.
Step 5: Learn from the Experience
This may be the most important step. Nobody likes tax troubles, but they can be valuable learning experiences. Take this opportunity to educate yourself about tax planning, deductions, and credits. Consider meeting with a tax professional at least once a year to ensure you're on the right track. By staying informed and proactive, you'll be better equipped to tackle future tax challenges and avoid finding yourself in a similar situation.
Remember, you're not alone in this. Millions of people face tax problems each year, and they manage to overcome them. With a little bit of knowledge, planning, and maybe some extra hustle, you'll be well on your way to resolving your tax issues.
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