As of this year, roughly 40% of Americans anticipate owing taxes. Since this number has steadily increased over the last two years, you may find yourself a part of this unhappy group.
In turn, you may be worrying, “What happens if I can’t pay my taxes?” if so, this is the article for you. Continue reading to learn how to avoid delinquent payments to the IRS and stay on track.
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Avoid This Top Taxpayer Mistake: Don’t Ignore the IRS
When confronted with a tax bill, many desire to hide their head in the sand. However, avoiding the IRS will not make your problem disappear; it will only make it worse. Doing so risks hefty fines, late fees, and interest accruals while not paying the taxes owed.
Ask For an Extension on Tax Payments
One of the methods that the IRS offers for taxpayers to avoid delinquency is a one-time extension due date of your bill. If you qualify, you can get up to 120 days to pay.
You Don’t Have to Pay It All at Once
The IRS refers to this option as an installment agreement, and it’s available to those who cannot pay off tax obligations all at once. If you owe $50,000 or less, including penalties, taxes, and interest, you can get 120 or more days to make monthly payments for a long-term plan. Alternatively, there is a short-term plan of less than 120 days available for those who owe $100,000 or less.
You may also have to submit documents proving your financial situation, depending on how much you owe.
These payment plans can usually be set up conveniently on the IRS website. But, if you owe $100,000 or more, you may have to contact the IRS directly to set up an installment agreement.
However, you aren’t eligible for this option if you didn’t file taxes for prior years.
Negotiate a Settlement
If you prove that paying your entire tax bill would cause significant financial hardship, you may qualify for an Offer in Compromise. This repayment option allows you to settle with the IRS to reduce your balance. To determine whether you’re entitled, the IRS will examine your assets, income, and expenses.
Also, an Offer in Compromise is only available for those who have no delinquent payments, are up to date with filing taxes, and are not in bankruptcy. However, there are more criteria for business owners.
If you’d like to check your eligibility prior to applying, you can use this tool on the IRS website.
Defer Collection
For taxpayers who are experiencing temporary financial difficulties, the IRS may consider a “currently not collectible” status. This means you won’t have to make payments during this period until your situation changes. You will likely have to submit paperwork to prove this status.
However, you should remember that this doesn’t eliminate your debt, which will continue to accrue interest and penalties during the delay. They may also file a Notice of Federal Tax Lien on your assets, which, among other things, will prevent you from selling or changing ownership of all assets to protect the government’s interests.
Since this can be complicated, it’s advisable to work with a tax attorney to pursue this option.
Don’t Allow Delinquent Payments to Affect Your Life
The government offers several options that reduce the hardship of paying tax bills. So, if you find yourself owing the government money, remember you will always be in a worse position if you have delinquent payments, including ineligibility for any of the above opportunities.
Not done learning? Then keep exploring for more illuminating reads in our Business or Finance sections.
