If you've just discovered that you might not be able to afford your taxes this year, don't panic.
First of all, if the April 15th deadline is looming, you should know that it's extremely important to file your taxes by that date, regardless of how soon you can pay. The fees for filing late are actually much higher and more inflexible than the fees for paying late. So do yourself a major favor and file on time.
Staying on top of your tax bill is a crucial part of responsible personal financial management. When dealing with the IRS, it's important to address any tax issues as promptly as possible. If you ignore the issue altogether or don't respond to any issues with the IRS in a timely manner, you could force the IRS to garnish your wages, tank your credit, or issue liens on your property - depending on how much you owe. In extreme cases, you might even have to file for bankruptcy or serve jail time.
If you can't afford to pay the IRS what you owe in full by April 15th, you have several options going forward.
The IRS can grant you additional time to pay
If you don't have the money now, but you're certain you can pay in full within 60-120 days, you can request a short extension from the IRS. This is generally the most cost-effective option, as you will pay less in penalties, fees, and interest if you pay in full within 120 days. To request additional time to pay, you can simply call the IRS at 800-829-1040 or apply for an extension using the Online Payment Agreement Application found on the official IRS website.
The IRS can help you set up a monthly installment plan
If you owe less than $50,000, you can apply for a monthly installment plan using the same Online Payment Agreement application mentioned above. Interest will accrue each month on the balance you owe, but the IRS' interest rates are comparatively minimal. If you owe more than $50,000, you can still apply to pay by installments, but you'll also have to submit a financial statement.
You can pay the IRS with a credit card
Charging your taxes may not seem like the most intuitive option, but it's one you should consider. You would be wise to confirm that your credit card interest rate is better than the one offered by the IRS' monthly installment plan before pursuing this option,however. The IRS works with several different processing companies who can assist with this transaction for a small flat fee. You can find the full list of companies that process tax payments via debit or credit card at the IRS website.
You can submit an offer in compromise
If you don't think it's likely that you'll ever be able to pay your tax bill, or you feel that doing so would cause financial hardship, you can make an offer in compromise. This allows you to only pay a fraction of what you owe the IRS, and it's an especially good option if you already owe a lot in back taxes. When you submit an offer, the IRS looks at factors such as your ability to pay, income, asset equity, and expenses, and reassesses what they can reasonably expect from you. Again, you can find the information and paperwork you need to make an offer in compromise on the IRS website.
For further reading on money management or asset protection, be sure to consult our Protective Learning Center.
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