What do you do when you finally get all of your information together to file your income taxes, and you find out that not only aren’t you getting a tax refund, but you actually have to pay taxes?! It’s not a problem if you have enough money set aside to pay it off, but for people who don’t have enough money in their bank account to pay their taxes, this can be a very scary experience.
First of all, you don’t need to panic. You are not the first (or the last!) person to owe the IRS money and not have access to the money immediately to pay them back. These are some tips for paying your taxes when you don’t have the money to pay on time.
File your taxes on time.
Even if you owe a ton of money and have no idea where you’ll get it, you need to file your taxes on time (including filing for an extension). If you send your information in late, you’ll be adding fees and penalties to the amount you owe. If you decide not to file your taxes at all — you’ll be looking at criminal charges.
Check all resources.
Take a look in all of your savings accounts and investments to see if there is any way you can come up with the money to pay your taxes. Think about friends or family who may be able to lend you the money.
Get an installment plan.
The IRS can also help you set up a payment plan if you can’t pay for your taxes in one lump sum. When you file your return, you’ll receive a letter from the IRS that states how much you owe. Begin saving money and looking for ways to pay your taxes. If you know for sure you won’t be able to pay your taxes in a lump sum, ask the IRS for the installment plan. You can indicate how much you feel you can afford and as long as you will pay off the balance in a 12 month period, the IRS will usually grant you an installment plan. Having an installment plan will cost you additional money in fees, but it gives you an opportunity to pay it over time.
Apply for Offer of Compromise.
If you get turned down for the installment plan with the IRS, you might consider the Offer of Compromise. This lets you make a one time payment or schedule several payments over time but is a much more involved process than asking for an installment plan. It also costs $150 to apply and each person is evaluated individually based on their financial situation. You are not guaranteed approval even if you pay the $150 application fee so you will want to try the installment plan option first.
If you owe money to the IRS, the worst thing you can do is sit back and hope it goes away. The longer you wait, the harder it will be to pay it because the penalties and fees will continue to add up. The best you could hope for after waiting and hoping it will all go away is a tax settlement of some sort! You need to establish a plan of action that works for your financial situation right now, and follow through with it until the amount you owe is paid in full.
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