Don’t panic, there are solutions that can help you know what to do if you can’t pay your income tax. The U.S. Internal Revenue Service (IRS) understands that not everyone is in a financial position to pay all their income taxes, and allows several remedies to such a situation.
Statistically, there are hundreds of millions of U.S. tax filers, over 250 million people in a recent tax year, and the IRS has to keep up with all of them. Of the millions of tax filers, those whose payments are late are likely a lesser concern than those who don’t pay any tax and file, in addition to those who don’t file taxes at all.
Tax payment solutions
If you don’t know what to do if you can’t pay your taxes, the following tips may be of assistance. For starters, most organizations to who money is owed would rather receive something than nothing including the IRS. If you are able to pay some, but not all of your income taxes a tax extension, offer in compromise or installment agreement request may be made. The IRS has specific forms for these actions which won’t even out your taxes until they’re paid, but will prevent the IRS from garnishing your wages or initiating an investigation unless an audit reveals additional problems.
• Don’t file taxes until around April 15th
Waiting until just before April 15th of the applicable tax year to pay your taxes can be a good idea in some circumstances. For example, if it is January, February or March and you don’t have the tax money due, but will have it by April 15th waiting a little to file might prevent late payment penalties, interest charges on tax and other budget problems. It is a good idea to be absolutely certain of the availability of funds using this method as a bounced check is not considered payment. Also, if sending tax information by mail, sending certified can ensure you have record of filing time. Moreover, April 15th postmarked tax returns are considered on time.
• Wait for a tax bill
If you can't pay your taxes by waiting until April 15th another option is to file the taxes by April 15th, but not pay them until a bill is received. The bill may have an interest and/or late payment charge, but payment of the tax bill in part or in full further acknowledges your commitment to pay the funds.
• Re-organize your budget
Some credit card service providers or financial institutions may allow you to defer payment on debt by 1-30 days if you make a request and/or file the right paperwork with them. For example, if you pay your credit card on the 1st of the month, you may be able to change the date to the last day of the month i.e. between 27-30 days. This extension may buy you enough time to raise the necessary funds to pay some or all of your taxes without having to take a more extreme measure such as bankruptcy. Alternatively, re-balancing payments to allow for tax payment may avoid IRS penalty, but may also incur higher interest on the debt that was re-balanced.
• Take out a loan
If you don't know what to do if you can't pay your taxes, but have a good credit rating, and access to financing, a low interest loan might cost less than paying late. An interest rate around 5-9% could end up costing about the same as or less than interest and penalty on tax due to the IRS. Contacting the IRS at 1-800-829-1040 to determine the cost of late payment may clarify if this option is better. Such a loan would also place you in good standing with the IRS if you the loan funds to properly pay your taxes. Properly paying your taxes could involve any of the options provided by the IRS i.e. partial or complete payment. Paying with credit card is also an option because it can allow you 30 extra days to pay the bill without interest, making the cash outflow deadline around May 15th.
• File for bankruptcy
Depending on the exact tax scenario different options may work better if you can’t pay your income tax. For example, if you have absolutely no chance of paying any tax at all and you have other creditors with whom you are in default and you have no income, there’s a good chance you’d qualify for bankruptcy which can offer you some protection when it comes to paying taxes. The protection that bankruptcy allows is the potential for a bankruptcy judge to absolve you of tax debt in part or in full in addition to the same via the IRS.
• Defer payment
Deferring payment within 120 days of April 15th can avoids having to use the IRS payment installment plan which charges additional fees for use. In other words, if you can pay all your taxes within 4 months of the tax deadline, do so using an IRS Form 1127, by paying bills upon receipt, or by paying partial payments with interest and late fee penalties. Additionally, some tax filers may qualify for a military tax deferment option if their service prevented filing or paying of taxes.
Summary
Knowing what to do if you can’t pay your taxes is an important first step in properly dealing with the situation. The reasons for not being able to pay your taxes on time can vary; perhaps the withholdings on your W-4 were to small, or maybe your taxable income is unexpectedly in a higher tax bracket, or perhaps you just don’t have the money available. Whatever the situation it is important to take the right steps that help avoid or reduce penalties associated with not filing taxes.
The methods in this article are suggestions based on tax information available from the U.S. Internal Revenue Service and do not replace the advice of tax attorney or accountant. If your tax situation involves back taxes and large amount of late taxes it may be a good idea to seek legal or additional financial advice either via the IRS directly or through a legal professional specialized in tax issues.
Statistically, there are hundreds of millions of U.S. tax filers, over 250 million people in a recent tax year, and the IRS has to keep up with all of them. Of the millions of tax filers, those whose payments are late are likely a lesser concern than those who don’t pay any tax and file, in addition to those who don’t file taxes at all.
Tax payment solutions
If you don’t know what to do if you can’t pay your taxes, the following tips may be of assistance. For starters, most organizations to who money is owed would rather receive something than nothing including the IRS. If you are able to pay some, but not all of your income taxes a tax extension, offer in compromise or installment agreement request may be made. The IRS has specific forms for these actions which won’t even out your taxes until they’re paid, but will prevent the IRS from garnishing your wages or initiating an investigation unless an audit reveals additional problems.
• Don’t file taxes until around April 15th
Waiting until just before April 15th of the applicable tax year to pay your taxes can be a good idea in some circumstances. For example, if it is January, February or March and you don’t have the tax money due, but will have it by April 15th waiting a little to file might prevent late payment penalties, interest charges on tax and other budget problems. It is a good idea to be absolutely certain of the availability of funds using this method as a bounced check is not considered payment. Also, if sending tax information by mail, sending certified can ensure you have record of filing time. Moreover, April 15th postmarked tax returns are considered on time.
• Wait for a tax bill
If you can't pay your taxes by waiting until April 15th another option is to file the taxes by April 15th, but not pay them until a bill is received. The bill may have an interest and/or late payment charge, but payment of the tax bill in part or in full further acknowledges your commitment to pay the funds.
• Re-organize your budget
Some credit card service providers or financial institutions may allow you to defer payment on debt by 1-30 days if you make a request and/or file the right paperwork with them. For example, if you pay your credit card on the 1st of the month, you may be able to change the date to the last day of the month i.e. between 27-30 days. This extension may buy you enough time to raise the necessary funds to pay some or all of your taxes without having to take a more extreme measure such as bankruptcy. Alternatively, re-balancing payments to allow for tax payment may avoid IRS penalty, but may also incur higher interest on the debt that was re-balanced.
• Take out a loan
If you don't know what to do if you can't pay your taxes, but have a good credit rating, and access to financing, a low interest loan might cost less than paying late. An interest rate around 5-9% could end up costing about the same as or less than interest and penalty on tax due to the IRS. Contacting the IRS at 1-800-829-1040 to determine the cost of late payment may clarify if this option is better. Such a loan would also place you in good standing with the IRS if you the loan funds to properly pay your taxes. Properly paying your taxes could involve any of the options provided by the IRS i.e. partial or complete payment. Paying with credit card is also an option because it can allow you 30 extra days to pay the bill without interest, making the cash outflow deadline around May 15th.
• File for bankruptcy
Depending on the exact tax scenario different options may work better if you can’t pay your income tax. For example, if you have absolutely no chance of paying any tax at all and you have other creditors with whom you are in default and you have no income, there’s a good chance you’d qualify for bankruptcy which can offer you some protection when it comes to paying taxes. The protection that bankruptcy allows is the potential for a bankruptcy judge to absolve you of tax debt in part or in full in addition to the same via the IRS.
• Defer payment
Deferring payment within 120 days of April 15th can avoids having to use the IRS payment installment plan which charges additional fees for use. In other words, if you can pay all your taxes within 4 months of the tax deadline, do so using an IRS Form 1127, by paying bills upon receipt, or by paying partial payments with interest and late fee penalties. Additionally, some tax filers may qualify for a military tax deferment option if their service prevented filing or paying of taxes.
Summary
Knowing what to do if you can’t pay your taxes is an important first step in properly dealing with the situation. The reasons for not being able to pay your taxes on time can vary; perhaps the withholdings on your W-4 were to small, or maybe your taxable income is unexpectedly in a higher tax bracket, or perhaps you just don’t have the money available. Whatever the situation it is important to take the right steps that help avoid or reduce penalties associated with not filing taxes.
The methods in this article are suggestions based on tax information available from the U.S. Internal Revenue Service and do not replace the advice of tax attorney or accountant. If your tax situation involves back taxes and large amount of late taxes it may be a good idea to seek legal or additional financial advice either via the IRS directly or through a legal professional specialized in tax issues.
Source: http://www.irs.gov (U.S. Internal Revenue Service)
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