5 Things to Do If You Can’t Pay Your Taxes to the IRS
If you cannot pay your taxes to the IRS, there are many things you can do to lower your penalties. In this video we will show you 5 things you can do if you can’t pay your federal taxes to the IRS.
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The last day to file and pay your taxes is approaching, so we are near to the Tax Day and for many of us we have to pay our taxes. Now what happens if you know you’re going to owe taxes, but unfortunately for many reasons, you don’t have enough money to pay your full tax bill? In this video, we’re going to show you 5 things you can do if you cannot pay your taxes. That’s what we’re going to talk about in this video.
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Tax Day iis near, and what happens if you know you owe taxes, but for many reasons, you don’t have enough money to pay your full tax bill? Or you don’t have any money to pay your tax bill? There are 5 things you can do to help you out in this situation, and that’s what we’re going to talk about right now. Let’s go to the content.
So, these are the 5 things you can do if you can’t pay your taxes.
The first thing, don’t panic, stay calm. It’s not the end of the world. Believe me, you’re not alone. You’re not the first person who can’t pay their taxes and you won’t be the last. The IRS does have a lot of power, but the IRS is willing to help you out. So, the first thing you need to do is not panic, stay calm. There is a solution, maybe not the solution that you want, because obviously nobody likes to pay taxes, but there are things that you can do to help you out in this situation to help you. Maybe pay your tax slowly, in a payment plan extension. There are many things we can do. So, do not panic and stay calm, and look for help.
The second thing that you could do is file your taxes or send an extension. Remember that even though you can’t pay your taxes, you can still file your taxes on time. Now, if you can’t make payment instead of sending in your tax return, I suggest that you file an extension. Why? Because remember that the IRS has two penalties. The IRS has the failure to file penalty and the failure to pay penalty. Now, when you file an extension that gives you 6 more months to file your taxes. So that means that, if you don’t file your taxes by April 15th or whatever Tax Day it is for that specific year, if you file an extension and then you don’t file on time, you don’t get the failure to file penalty. Now, the failure to pay penalty, the extension does not cover the failure to pay penalty, but at least you’re getting more time to file your taxes.
So that brings us to the third thing you can do, send some kind of payment. If you cannot pay your taxes on time, we suggest sending an extension, but send it with some kind of payment or file on time but send your taxes with some kind of payment, it doesn’t have to be your full tax bill, but pay as much as you can afford, send that amount of money with your tax return or send it with your extension, this will help minimize your penalties and your interest. So, if you can’t pay your taxes on time, you can send your tax return or file an extension but send it with as much money as you can afford at that time. This is going to be a big help in the future.
The fourth thing you can do is set up a payment plan. You can set up a payment plan with the IRS. You can ask your CPA or your tax professional to set up the tax plan payment for you, you can do it yourself online via the IRS website or you can even call the IRS over the phone, and you can set up your payment plan with the IRS. There are many types of payment plans, and you can read on the Internet that this is how payment plans work, but the IRS website doesn’t give us a clear picture of how payment plans work. This is what we have seen in our more than 20 years of experience.
There are two types of payment plans. There are short-term payment plans. The short-term payment plan is if you can pay in under 180 days. So, if you can pay in under 180 days, basically that 6 months, there are no user fees and there is no minimum monthly payment due, you’re just telling the IRS “I am pledging that I’m going to pay down this tax bill in less than 180 days”; and you have to send in whatever amount of money you want in less than 180 days to pay off your tax bill.
Now, there are long-term payment plans with the IRS. The user fees depend on the type of payment plan, because you can pay, we have seen $31 or up to $225; so, if you want a long-term payment plan, the IRS is going to charge you a user fee. Now, the minimum monthly payment will depend on the amount that you owe, and once again there’s a lot of different articles online but in our experience, this is what we have seen. If you have an IRS tax debt of under $25,000, the IRS is going to take your tax balance, divide that by 32 months and that will be your minimum monthly payment.
We have seen that if you have a tax balance of over $25,000, the IRS will ask for information about your finances, your investments, your assets, and your bank account. Why? Because depending on what you have, the IRS may make you sell some of those assets in order to pay your tax bill and depending on your financial situation the IRS is going to give you a unique minimum monthly fee. So that’s what we have seen if you owe more than $25,000.
Now, the fifth thing you can do is try to go ask for an offer in compromise with the IRS. What is this program? The offering compromise is a program that the IRS offers where you can actually settle your tax bill for less than what you owe. If you have seen these famous commercials on TV that say “If you owe more than $10,000 to the IRS, you can pay pennies on the dollars”; that’s that system with the IRS. This may take a long time, the latest offering compromises that we have done take 4 to 6 months to settle an agreement with the IRS. A lot of people have been taking advantage of this service, so be careful who you do it with. At least here from FreedomTax Accounting. We tell our clients upfront if they apply or not for this type of service. Basically, what the IRS does is that you need to show the IRS that you know you have this tax bill, but you’re showing the IRS your financial situation and that you basically cannot pay back that tax bill ever. So, you need to send them a lot of financial information about your accounts, how much you make, your investment, your assets, and if the IRS determines that, yes, you are going through a financial situation that you cannot pay that tax bill, then they’re willing to negotiate with you and bring that tax bill down. So that’s the way offering compromise works.
These are the five things you can do if you cannot pay your tax bill. These are the things you must do. Number one, you file your tax return on time, or you file an extension. If you do nothing, it’ll be worse. So, by the Tax Day, you either must send your tax return with some kind of payment or without a payment or file an extension. That way you don’t get the late filing penalty. Also, send in your tax return and your extension with some kind of payment, as much as you can afford. I think these are the two best things you can do if you cannot pay your tax bill in full.
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