Taxes are an inevitable part of life, and every year millions of people scramble to file their tax returns before the deadline. But what happens if you find yourself in a situation where you can’t afford to pay the taxes you owe? This can be a stressful experience but don’t worry, you’re not alone. There are options available to help you manage your tax debt and find a solution that works for you.
In this blog post, we’ll go over seven options if you find yourself unable to pay your taxes. Remember, it’s essential to act quickly and address your tax dilemma as soon as possible to minimize penalties and interest.
Request An Extension
If you need more time to file your taxes or gather the funds to pay your tax bill, consider requesting an extension. The IRS allows taxpayers to apply for an extension, giving you up to six additional months to file your tax return.
Keep in mind that an extension only gives you extra time to file, not to pay, so interest and penalties will continue to accrue on any unpaid balance. If you need more information on how to request an extension, click here.
Installment Agreement
An installment agreement is a payment plan that allows you to pay off your tax debt in smaller, more manageable monthly payments. The IRS offers various installment agreement options to taxpayers, depending on your specific situation and the amount you owe. Keep in mind that interest and penalties will continue to accrue on your unpaid balance until the debt is paid in full.
To apply for an installment agreement, you can use the IRS’s Online Payment Agreement tool or complete Form 9465.
Offer In Compromise
An Offer in Compromise (OIC) is an agreement between you and the IRS that allows you to settle your tax debt for less than the full amount you owe. This option is typically only available to taxpayers who can demonstrate financial hardship and prove that they are unable to pay their tax debt in full.
To apply for an OIC, you’ll need to submit Form 656 and Form 433-A or 433-B, along with a non-refundable application fee.
Temporary Delay
If you’re experiencing a financial crisis that makes it impossible for you to pay your taxes, the IRS may grant you a temporary delay in collection.
During this time, the IRS will halt collection actions, such as garnishments and levies. However, interest and penalties will continue to accrue on your tax debt. To request a temporary delay, contact the IRS and provide them with proof of your financial hardship.
Innocent Spouse Relief
If your tax debt is the result of a joint tax return filed with your spouse or ex-spouse, and you believe that you shouldn’t be held responsible for the tax debt, you might qualify for Innocent Spouse Relief. This relief absolves you from paying tax, interest, and penalties related to your spouse’s or ex-spouse’s erroneous tax reporting.
To apply for Innocent Spouse Relief, submit Form 8857 to the IRS.
Penalty Abatement
In some cases, the IRS may be willing to remove or reduce penalties associated with your tax debt. This is known as penalty abatement.
To qualify for penalty abatement, you’ll need to demonstrate reasonable cause for not paying your taxes on time, such as a natural disaster, serious illness, or other extraordinary circumstances. To request penalty abatement, contact the IRS and provide documentation to support your claim.
Bankruptcy
As a last resort, you may consider filing for bankruptcy to discharge your tax debt. However, bankruptcy should be considered carefully, as it can have long-lasting consequences on your credit and financial future.
Not all tax debts can be discharged in bankruptcy, and the process can be complicated and expensive. If you’re considering bankruptcy, it’s crucial to seek the advice of a qualified bankruptcy attorney to determine if it’s the right option for you.
Conclusion
If you find yourself unable to pay your taxes, don’t panic. There are several options available to help you manage your tax debt and find a solution that works for you. Whether you request an extension, set up an installment agreement, or apply for an Offer in Compromise, taking action and addressing your tax dilemma as soon as possible is key to minimizing penalties and interest. Remember, the IRS is often willing to work with taxpayers who are experiencing financial hardship and are unable to pay their taxes on time. Consider all of your options carefully, and don’t hesitate to reach out to the IRS for assistance.