If you know you'll receive a refund when filing your taxes; filing taxes can be almost fun. But if you think you owe the IRS money that you don't have, it may even be difficult to start the process.
According to a survey conducted by NerdWallet, among those who did not file by last year's extended deadline of July 15, 2020, 24% knew they owed money but could not pay, and 18% did not know they owed the IRS but were afraid to get a bill they couldn't pay.
The tax bill you understand is better than the one you don't know
As with most problems, putting the tax bill in the drawer and forgetting it won't make it go away.
If the process of filing your taxes is expensive to start with, you can ask for help. The federal government has diverse programs to provide free tax assistance to eligible individuals, such as voluntary tax assistance and tax advice for the elderly. Many tax service providers also offer a free version of their services to those who find themselves in straightforward tax situations. The IRS itself offers a free enrollment program for those who qualify.
But if you are deferring filing because you are worried about paying taxes, you need to understand the tax exemption options. Here are ways to get help with your tax debt.
Pay what you can
No matter what you owe, you should try to apply on time (or request an extension if you can't meet the deadline). Asking for an extension will give you more time to file your taxes, not more time to pay the bill, but skipping the extension can result in stiffer penalties.
If you don't pay your taxes, the Internal Revenue Services charges interest on what you owe. You may not be able to pay all of your taxes, but paying part of that bill will reduce the amount of interest you have to pay on the rest of your taxes.
Consider an IRS payment plan.
An IRS (Internal Revenue Services) payment plan, also called an installment agreement, allows you to pay taxes owed over a long period of time. Once a monthly payment plan is established, these payments cannot be renegotiated. The IRS allows you to pay [up to] 72 months. If you choose this option, you can always pay more, but you can never pay less.
Break your payment over the longest possible time so that they are set at the lowest possible amount. That way, if the going gets tough and you're in a tough spot, you really have the option of paying the minimum amount owed for a certain month.
Please note that a payment plan will incur certain interest charges and penalties. You may also need to pay a processing fee to use a credit or debit card and a setup fee. This is dependent on the length of the payment plan and whether or not you apply online.
Ask for an offer in compromise.
An offer-in-compromise (OIC) saves you your tax debt. One of the main benefits of an offer in compromise is that you end up paying less than you actually owe. An offer in compromise has other benefits, such as avoiding collection calls and letters from the IRS.
Asking for an offer in compromise is a tedious process that involves a large amount of paperwork to prove you can't pay the bill, an application fee of $205, and an upfront payment on your bill. While your application is being reviewed, your payments and fees will be applied to your balance, which you may have to pay, even if the IRS agrees to reduce it.
Please note that the IRS rejects the most offers in compromise requests. If so, your payment will likely be applied to your balance. Your application fee may be refunded in certain situations.
If you meet the low-income certification, you may not have to pay the application or fee upfront. In addition, you will not have to make monthly payments when evaluating your offer.
Request for a "currently not collectible" status.
Those who cannot pay taxes can ask the IRS to put them in "currently not collectible" status. This means that the IRS will temporarily delay collection until your financial situation improves. Please note that this is only a temporary tag that the IRS places on your account; the condition is not permanent and you will eventually have to pay your tax debt. (The IRS may also grant you foreclosure rights while you are in this state.)
To get a currently not collectible status, you will need to complete a form and provide information about your monthly assets, income, and expenses.
Consult an expert if you can.
Consult a tax professional like UNIFIRST FINANCIAL & TAX CONSULTANTS before taking action with the IRS.
If you cannot work with a tax professional, free tax assistance resources are available to help you clarify which options are right for you, but a professional is always a sure bet.
FOR MORE INFORMATION ON HOW UNIFIRST FINANCIAL & TAX CONSULTANTS CAN BEST HELP YOU WITH YOUR TAX FILING NEEDS, PLEASE CLICK THE BLUE TAB ON THIS PAGE.
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