Every year, Americans must submit an income tax return along with any taxes that they may owe. However, there may come a time when you can’t afford to pay a balance owed for any variety of reasons. For instance, a sudden job loss or an unexpected medical bill could make it impossible to pay the IRS on time. Fortunately, there are ways to resolve the situation in a manner acceptable to the government.
Ask for an Extension to File
The first step that you can take is to ask for an extension to file your taxes. While this doesn’t give you an extension to pay taxes owed, the penalty for failure to file is much larger than failing to pay your taxes. If you have paid at least 90 percent of your estimated taxes, you may not be subject to any additional penalty. The same is generally true true if you owe less than $1,000. This extension is available to all taxpayers with no questions asked, and it will not increase your odds of being audited.
Ask for an Installment Agreement
If you still don’t have enough money to pay your taxes by October, it may be possible to ask for an installment agreement. The agreement gives you another 60 to 120 days to pay whatever balance that you owe to the government. However, if you fail to pay the balance in full, the government could take steps to garnish your wages or put a lien on assets.
Make an Offer In Compromise (OIC)
An OIC is your way of telling the government that you have no way to pay your past due tax balance in full. Like any other creditor, the government would rather have some of its money rather than nothing at all. Therefore, if you can show that you legitimately don’t have assets to sell or access to credit to make payments, the IRS will take less than what is owed.
The extent to which the agency will forgive that debt depends on the specific circumstances in your case. It is worth noting that you should make a serious offer that you intend to follow through with in good faith. The IRS is likely to reject a frivolous offer or one that doesn’t adequately reflect your ability to pay.
Pay With a Credit Card
The IRS does allow you to pay taxes with a credit card. This is done through third-party payment portals that you can access from the IRS website. There are service fees that you will need to pay on top of the balance owed. However, these fees can be deducted from your tax return. It is important to note that tax debt is rarely discharged in bankruptcy court, and putting a tax payment on a credit card won’t change that.
Pay Whatever You Can
If you can’t pay the full balance on time, you can choose to make a partial payment when filing your return. While interest will still accrue on the outstanding balance, which means that you want to pay the rest of what you owe as soon as possible. However, making a payment or payments in good faith increases the odds that the government will hold off on levying harsher penalties.
Consult With a Tax Expert
A tax professional may be able to help you decide the best course of action if you are unable to pay your taxes for any reason. He or she could help you craft an OIC that the government is likely to accept. If your adviser is an enrolled agent, he or she could also negotiate on your behalf with the IRS to help reduce the amount that you owe. Negotiating with the federal tax authority could also reduce the odds of a lien or wage garnishment. In some cases, it is possible to have interest or other fees waived or reduced to make it easier to pay an outstanding balance.
Ideally, you will plan to have enough money withheld throughout the year to avoid being in debt to the IRS come tax time. While owing the government money can be a stressful situation, there are ways to settle your debt in a timely and convenient manner. Understanding those options can prevent your wages from being garnished or assets seized by the IRS.