Posted by James Financial Services Inc

What Are My Options If I Can't Pay Taxes?

What Are My Options If I Can't Pay Taxes?

Can't Pay Tax Before Tax Day? The most important piece of advice we can offer you is: don't avoid the problem! The IRS cannot tell if you have a legit reason for not paying taxes or if you are trying to avoid paying taxes. To the IRS, you must pay the taxes due. Therefore, it is advisable to face the problem head-on so you can clean up the mess and ensure you're never in that position again.

The good news is, if you know where to start, it can be done. Usually, you have three options:

  • Request for an offer in compromise.

  • Get a monthly payment agreement.

  • Make an initial payment or file and don't pay.

Every individual's tax situation is unique, and there is no one-size-fits-all strategy, so you should consult a tax professional for advice. However, if you are looking for advice, experts usually recommend these three maneuvers.


Request an offer in compromise

This is another approach the IRS recommends if a taxpayer simply cannot pay what they owe. Just make an offer to the IRS on what you think you can pay, and if they agree, you pay for it.

According to the Internal Revenue Service website: "An offer in compromise (OIC) allows you to pay off your tax debt for less than the full amount owed. This can be a legitimate option if you can't pay off all of the tax debt, or if doing so will create difficulties for you". The IRS will consider all of your facts and circumstances, such as:

  • Asset equity.

  • Expenses; 

  • Income;

  • Your ability to pay;

The IRS usually approves an offer in compromise (OIC) when the amount offered is the maximum amount expected to receive within a reasonable time. They advise that you explore all other payment options before submitting an offer in compromise.

It's also vital to note that you'll need to pay a fee of $205 when you apply, although you can get an exemption if you follow the agency's low-income certification guidelines. However, if you owe money and really think you don't owe what the IRS says, you can probably avoid the charges by submitting Form 656-L, "Offer in Compromise (Doubt as to Liability).

An offer in compromise (OIC) is a great option if you owe the IRS a lot of money, limited resources, and limited payment capabilities. Ironically, the more you owe, the more likely you are to save on an offer in compromise. Remember that if the IRS thinks you can pay within the statute of limitations, typically ten years, it won't accept your offer.


Advantage: You don't want this problem to hang around forever, and it can be a permanent solution to your financial situation.

Disadvantage: You will typically pay 20% of your bid in cash and the rest in installments. If the IRS accepts the deal and you break it, it can sue you for the outstanding tax debt, as well as fines and interest.


Get a monthly payment plan.

If you are behind on your taxes but think you can offset them over time, this is probably the best option. After filing your tax return, complete an online payment agreement form on the IRS website.

You can also mail your taxes and include Form 9465. The form is used for taxpayers interested in a monthly payment plan. The IRS will give you 72-months to pay your bill, provided you owe $50,000 or less in combined taxes, fines, and interest.

It is impossible to enter into a monthly payment agreement with the IRS until you have updated the previous filing.

Make sure you contact the IRS and get a payment plan. If you can't pay Uncle Sam anything, especially if you've been affected by COVID, ask them to report your account as "temporary non-collectible".

That being said, the tag is essentially a substitute for the IRS to know your status. Besides, it won't help you much. The IRS will continue to charge interest and possible late payment penalties.


Advantage: Maybe you can finally get rid of stress. You will pay the IRS monthly, and your anxiety may decrease.

Disadvantage: Interest will continue to accrue with the current payment plan. If your debt continues to accumulate, the IRS may post a federal tax lien against you and your property, which can make it difficult to get a decent loan.

The tricky part of paying for an installment loan with the IRS, especially if you're self-employed and need to make quarterly tax payments: When paying unpaid taxes with a monthly payment plan, you still owe making payments this year, so you don't keep falling behind.

If you are paying too much per month and don't have enough budget to pay your taxes this year, you can start a vicious cycle of owing the IRS indefinitely.


Make an initial payment or file and don't pay.

No matter what, if you prepare your taxes and find that you owe a lot, don't be discouraged and not file. If you want to set up a monthly payment plan or an offer in compromise or just need a little time to think about what you want to do, file your taxes.

If you can't pay your taxes in full, it is advisable that you send at least partial payments every month.

For example, if your 2020 tax debt is $35,000 and you don't have $35,000, file the return on time and send a check for $500 or whatever you can afford.


Advantage: First of all, you want to file your tax return. There is no "might" in this regard. You can, of course, sign up for an extension. It doesn't save you money, but it does give you more time to prepare your tax returns.

If you don't file on time, that's a completely different penalty than non-payment. And the implication is worse than the non-payment. It is 4.5% per month up to a maximum of 25%. On the contrary, the non-payment is only 0.5% per month.

If you want to think about your next move and don't have the money to pay your taxes, sending a few dollars each month can reduce penalties in the future and put you in the IRS's good books.

Disadvantage: Not working out anything will hurt you in the long run. Your tax debt will continue to grow, and if you eventually qualify for federal tax privileges, it will hurt your credit. You will have a relatively small problem with a large snowball.


Final word

Work with a tax professional you can trust to make sure you don't end up with taxes you can't pay anymore. This could mean separating your income from a secondary business or adjusting income tax withholding. Whatever the problem, a tax professional can identify it and help you correct it in the future.

To save time and effort, be sure to gather the right documentation first. Don't know what kind of paper you need? Ask an expert.

This is not a situation where you have to take care of yourself. You need a qualified tax expert  such as JAMES FINANCIAL SERVICES, INC. to guide you through this process.


FOR MORE INFORMATION ON HOW WE CAN HELP YOU WITH YOUR TAX FILING NEEDS, PLEASE CLICK THE BLUE TAB ON THIS PAGE.


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