Home » Headline, Personal Finance

5 Options if You Can’t Afford Your Tax Bill

13 May 2021 No Comment

When you know that you’re probably getting a refund on your taxes, the process of filing your taxes is more annoying than stressful. If you believe you owe the IRS, on the other hand, the process can become fraught, especially if you don’t know if you can afford your tax bill. With the chaos and financial hardships of 2020, many people are facing the possibility of a tax bill they can’t pay for the first time. Fortunately, there are a number of options, from federal programs to tax resolution services, that can help give you more control over your tax bill and ensure that you don’t get in trouble with the IRS. Here are 5 options you can consider if you can’t afford your tax bill.

1: Pay What You Can On Time

Even if you can’t afford the full amount you owe on your taxes, there are still ways that you can minimize that bill. You should always try to either file on time or put in the paperwork for an extension. You should keep in mind, however, that an extension won’t give you more time to pay your taxes and that missing the extension can lead to heavy fines. Another source of increased taxes owed is if you don’t pay your taxes at first and the IRS charges interest on what you owe. This means that it’s always better to pay what you can of your bill in order to mitigate the amount of interest you’ll have to pay.

2: IRS Payment Plans

For those who are unable to pay the full amount, the IRS offers payment plans. These plans can extend up to 72 months, but you must keep in mind that you won’t be able to renegotiate after you’ve signed a payment plan contract. This means that, if you’re in a financial situation where you are uncertain about your ability to pay above a certain amount, you should choose a longer payment plan in order to ensure that you won’t be hit with major fines. IRS payment plans accrue interest, of course, but this is a relatively easy option that can be quite flexible. You can also always pay more than the minimum to lower the amount of interest you’ll pay over time.

3: Offers of Compromise

For those in even more precarious financial situations, it may be possible to apply for an offer of compromise that will allow you to settle your tax debt. In many situations, you will likely pay much less than what you owe, so this is a good solution if you have a large amount of tax debt that would make an initial payment plan unrealistic. It is, however, a long, somewhat difficult process that requires complete financial documentation to prove your need for an offer of compromise, a $250 fee, and a significant initial payment. Therefore, there are many people who will not see this as a realistic option in their financial situation.

4: Status as “Currently Not Collectible”

If your financial hardships are expected to be temporary, you can ask the IRS to put you into a “currently not collectable” status. This means that the IRS will delay collection temporarily, usually for a designated period of 3 months, 6 months, or a year. This is very much a temporary solution and should only be done if you’re confident about your ability to eventually pay off your tax debt.

5: Find a Tax Specialist

Tax specialists and professionals aren’t just for the ultrarich looking for loopholes. There are many tax specialists who are experts in dealing with tax debt. They can help open doors with the IRS and give you expert advice as to what options are best in your situation. They can even help negotiate with the IRS to get you more favorable interest rates and reduce fines. If you can’t afford to hire a tax specialist, there are also many free or reduced-rate specialists who may be able to shed light on your particular tax situation.

Comments are closed.