Discovering that you owe taxes can be stressful, especially if you don’t have enough funds to pay your bill. However, the IRS offers several options to help taxpayers who find themselves in this situation. From payment plans to potential relief programs, there are steps you can take to avoid further penalties or financial strain. This article will guide you through what to do if you owe taxes and can’t afford to pay.
Don’t Panic: Understand Your Situation
The first thing to remember if you owe taxes and can’t afford to pay is that you’re not alone. Many taxpayers face this issue, and the IRS understands that paying taxes can be difficult. The IRS provides several options for people in financial hardship, and it’s important not to ignore your tax debt. Failing to address it can lead to increased penalties, interest, and potentially even collection actions like wage garnishments or liens.
Take a deep breath, assess your situation, and explore the available options. The IRS is often willing to work with taxpayers to create a manageable solution.
Consider a Payment Plan
If you owe taxes but can’t afford to pay the full amount right away, one of the best options is to set up an installment agreement with the IRS. This allows you to make monthly payments until your debt is paid off. Here’s how it works:
- Short-Term Payment Plan: If you owe less than $100,000 (including penalties and interest), you may qualify for a short-term payment plan. This option gives you 120 days to pay your balance in full without the need to apply for a formal installment agreement.
- Long-Term Payment Plan (Installment Agreement): If you owe more than $100,000 or need more time to pay, you can apply for a long-term installment agreement. With this option, you’ll make monthly payments over a period of up to 72 months (6 years). You can apply online through the IRS website if your debt is below $50,000.
- Automatic Bank Payments: For easier management, consider setting up automatic payments. This ensures that you don’t miss any payments and reduces the likelihood of penalties and interest accruing.
- Fees for Installment Agreements: While setting up an installment agreement is a helpful option, the IRS may charge a setup fee, especially if you apply by mail. The fee can range from $31 to $225 depending on your payment method. However, this fee is often less than the cost of other collection methods, such as liens or garnishments.
Apply for an Offer in Compromise (OIC)
If you owe a significant amount of taxes and can prove that paying the full amount would cause you financial hardship, you may qualify for an Offer in Compromise (OIC). This program allows you to settle your tax debt for less than the full amount you owe. The IRS evaluates your ability to pay, income, and expenses to determine the amount you can afford to pay.
The OIC process can be complicated, and not everyone will qualify. However, if you are eligible, it can provide significant relief by reducing the amount of tax debt you need to pay. It’s advisable to consult with a tax professional when applying for an OIC to ensure that you meet the requirements and submit the correct documentation.
Request a Payment Extension
In some cases, you may be able to request an extension of time to pay your taxes. The IRS may allow you to delay your payment for up to 120 days, which can provide temporary relief if you’re experiencing a financial emergency or hardship.
To apply for an extension, you must submit IRS Form 1127 (Application for Extension of Time for Payment of Tax Due to Undue Hardship). If approved, the IRS will grant you additional time to pay your debt without imposing additional penalties or interest, although interest will still accrue during the extension period.
Look into Penalty Relief
If you’re unable to pay your taxes due to a reasonable cause (such as illness or natural disaster), you may be eligible for penalty relief. The IRS may waive penalties if you can demonstrate that your inability to pay was due to circumstances beyond your control. However, interest on the amount owed will continue to accrue.
There are different types of penalty relief available, including:
- First-Time Penalty Abatement: If this is the first time you’ve been penalized for failing to pay taxes, you may qualify for penalty abatement. The IRS may forgive penalties for reasonable first-time offenders.
- Reasonable Cause Relief: If you faced a difficult life event or emergency (e.g., serious illness or death in the family), you can apply for penalty relief by demonstrating reasonable cause.
Seek Professional Help
If you’re struggling to navigate the options available to you, seeking professional help is often the best solution. A tax professional or tax attorney can help you understand the IRS’s payment options, negotiate on your behalf, and guide you through the process of requesting an installment agreement, OIC, or penalty relief. They can also ensure that you file all the necessary paperwork correctly and advocate for you to get the best possible outcome.
Consider Bankruptcy as a Last Resort
If your tax debt is overwhelming and you’ve exhausted all other options, filing for bankruptcy might be a last resort. While bankruptcy typically doesn’t discharge most tax debts, certain tax obligations may be eligible for discharge under specific conditions. If you are considering bankruptcy, consult with a bankruptcy attorney to explore your options and determine if this is the right path for you.
Owing taxes can be a stressful situation, but it’s important to remember that there are options available to help you manage your debt. From setting up payment plans and requesting extensions to negotiating for penalty relief or an Offer in Compromise, the IRS offers various avenues for taxpayers who can’t afford to pay in full. Take proactive steps to address your tax debt, and don’t hesitate to reach out for professional help if needed. The sooner you act, the better the chances of reducing penalties and resolving your tax issues.
If you owe taxes and can’t afford to pay, our team is here to guide you through the options available. Contact us today to schedule a consultation, and let us help you find the best solution for your situation.
Call us at (786) 310-5582 or email us at [email protected].
