Every now and then, people find that they are unable to pay their taxes on time. This is apt to put some people into a panic, but others may choose to ignore it. Fortunately, there really is a right way to approach the tax deadline ?Çô even if you do not have the money to pay it.
Do Not Ignore It
Probably about the worst thing you could do is to do nothing. There is a deadline date for a reason, and the Internal Revenue Service (IRS) would like to hear something from you. Filing the forms on or before the tax deadline will also help you to avoid some fines and penalties.
Ideally, if you cannot pay the entire tax bill, the IRS recommends that you pay as much of it as you can when you file. This will benefit you by reducing the amount of interest you owe over the time it takes to pay the balance.
Steps to Take Before Calling the IRS
Ultimately, it will be necessary to contact the IRS and explain your situation. Before you contact them, however, it is a good idea to evaluate your financial situation. You will want to sit down and determine just how much you will be able to pay each month toward your tax bill. Be sure to consider all of your bills and expenses. You will want it to be a comfortable amount, one that you will likely be able to keep up with each month.
The 120 Day Option
The IRS allows people to pay their tax bill in full within 120 days after the tax deadline. It is not necessary to contact them about being late, if you are able to pay the entire bill within the 120 days. There are no forms to fill out, and it is not even necessary to make a call. You will have to pay interest and a penalty or fine may be added.
Contact the IRS
By filing on time, even without a partial payment (if you must), you at least demonstrate that you are willing to pay. The last thing you want is to not submit the paperwork and cause the IRS to think you are a tax evader. In that case, the collections process may be initiated.
Contacting the IRS can have positive results. They are often willing to work with you, depending on the circumstances. In some cases, they may even reduce, or even eliminate, some fines and penalties for late payments. Another benefit of contacting them and letting them know your situation is that it will likely help you to relax, because you will find that they will work with you, and secondly, you know what to expect.
Getting the Money
The IRS advises that if there is a way for you to get the money from another source, such as from a bank or from an individual, that it is a good idea. This step is advised because with the combination of the interest and penalties, it is likely to be higher than you could get elsewhere.
This means that if there is a way to pay it, you should. Using credit cards, a loan, or even a home equity line of credit, will help you avoid the higher priced penalties, which can max out at about 25%.
The IRS typically offers individuals the option to make installments with an installment plan, if you owe less than $50,000. There is a fee added for this service. You will pay one fee for monthly payments on your own, and about half of that if you set up an automatic payment plan. An agreement may be set up by applying online (Form 9465.pdf), or by calling the number on your tax bill, which will come about a month after you file.
Offer in Compromise
The Offer in Compromise is a program you may need to use if you do not see how you could pay the tax bill at all. You may be in extremely difficult financial circumstances, making it currently impossible to pay the debt. You need to file an application for it, and you will need to pay a fee of $186 with it, unless you make less than 250 percent of the guidelines for poverty.
This process is basically a negotiation with the IRS, but the IRS will basically need to see it as being unprofitable to try and collect. You also need to be current with all previous taxes, and fees will still apply. Tax returns and payments will be expected for the next five years.
When you cannot pay your tax bill, you can avoid problems with the IRS by contacting them. They will often have a friendly approach and are often willing to work with you.