Taxes are an unfortunate byproduct of living in the United States. While the intentions are good as taxes help support services like education and roads, they can also create financial strain and hardship on single filers or families that are worried about how they will pay back debt owed to the IRS.
Consequently, it is tempting for some to avoid filing taxes altogether in the fear of what they may owe back to the IRS.
It is never a good idea to avoid filing taxes even if you already know you won’t be able to pay them back. The IRS is forgiving of those that are in difficult financial circumstances and can work with you if there is trouble affording the debt. However, the same agency is much more unforgiving if the taxpayer neglects to file altogether.
Therefore, the golden rule is to never purposely avoid filing taxes just because you are worried about if you can afford to pay them.
“I think I’m going to owe the IRS, so it’s better not to file at all, right?”
False. The IRS is helpful and will assist those in financial distress if they are having trouble paying back what they owe. However, the agency is only helpful when the taxpayer goes through the same course of action as any other filer, including:
- Filing the appropriate forms and documents with the state government by the deadline.
- Filing the appropriate forms and documents with the federal government by the deadline.
It is important to note that just because you have to file taxes by April 15, does not mean you need to pay immediately. The only problem you can get into by that deadline is not filing at all.
The IRS charges penalties for late filing, so the first step you can take is just make sure you file state and federal returns by the deadline in order to remain in good standing with the government.
“Ok, I filed in time but I owe money. And I do not have the funds to pay back the government immediately.”
The most important thing you can do is take action. As previously mentioned, you still need to file taxes even if you do not believe you’ll be able to pay them back immediately.
As soon as you learn what you owe the next step is to consider your payment options. The IRS will work with you if there is no way you can afford the total sum in one installment.
The IRS does begin collecting interest on outstanding balances, yet for many this is a small price to pay compared to getting your assets frozen or seized by the U.S. government for neglecting or avoiding a filing.
Some elect to deal with the IRS directly in establishing a payment plan while others consult a tax professional. It is never a bad idea to opt for the latter, as a tax professional can help negotiate a fair deal. Furthermore, small business owners have to work directly with the IRS to determine an acceptable arrangement, so having tax representation from a pro on your end is very helpful.
“What are my payment plan options?”
Instead of repaying the IRS in a bulk sum, the agency will work with you to establish a payment plan that is similar to a monthly bill you would receive from a creditor. It is one of a few different options you can consider to settle debt:
- Figure out how much you can pay. Depending on the situation the IRS may let you determine how much you are willing to pay them each month. They are generally far more lenient compared to a creditor. It allows you to dictate how much, and for how long you want to repay the debt so long as you don’t mind the interest collected, which is usually at a low rate.
- Request an extension. The IRS will accept electronic fund transfers from a debit or credit card, as well as checks mailed through the post office up to 120 days after the filing period without penalty if paid in full. It is a grace period that exits before you consider other options.
- Enter a formal agreement. If you still can’t pay off the debt in up to 120 days after the filing you will want to enter a formal agreement with the IRS. The agency calls this an “Installment Agreement” which will include a mandatory fixed monthly payment, as well as the collection of interest. As long as you make the payments on time, the IRS will not come after your assets like they would if you ignored paying off the debt.
- Request an Offer in Compromise. If you have pressing financial difficulties, you can also request an Offer in Compromise. The agreement with the IRS may forgive you of some, or all of your tax debt. The IRS may also consider a Currently Not Collectible momentary waiver. The circumstances vary, so it is important to talk to a tax pro.
It is daunting facing a tax bill. The biggest mistake you can make is refusing to file as a result of those fears, or ignoring payments. There are options to help afford your debt or settle it for a lesser amount.
It is a good idea to get tax help when dealing with IRS negotiation for an Installment Agreement or Offer in Compromise. Call 1-800-TAX-LEVY or visit www.levytaxhelp.com for more assistance.