If you know you'll get a refund at tax time; filing taxes can be a lot of fun. But if you suspect you owe the IRS money that you don't have, it can be difficult to even begin the process.
The bill you know is better than the bill you don't know
Like most problems, if you put your tax bill in a drawer and forget it, that won't make it go away.
If filing taxes is a burden for beginners, you can get help. The federal government has programs to provide free tax assistance to eligible individuals, such as Voluntary Income Tax Assistance and Tax Counseling for Seniors. Many tax service providers also offer a free version of their software for those with simple tax filings, and the IRS offers a free filing program for those who qualify.
But if you're delaying filing your taxes because you're worried about owing taxes, you need to understand your tax exemption options. Here are five ways to get tax debt relief if you can't pay your taxes.
1. Pay as much as you can
Regardless of what you owe, you should always try to file on time before the deadline (or file an extension if you cannot meet the deadline). Filing for an extension gives you more time to file your taxes. But, not more time to pay your bill, but skipping the extension can result in stiffer penalties and fines.
If you don't pay your taxes, Uncle Sam charges interest on what you owe. You may not be able to pay the entire tax bill, but paying part of it will reduce the amount of interest you have to pay for the rest of the tax you owe.
2. Consider a payment plan
An IRS settlement plan also known as an installment agreement, allows you to pay taxes owed over a longer period.
Once a monthly payment plan is established, those payments cannot be renegotiated. The IRS lets you pay in [up to] 72 months. If you go with this option, you can pay more at any time, but you can never pay less.
It is recommended that payments be spread over the longest period possible to settle in the smallest possible amount. That way, if the time comes and you find yourself in a difficult situation, you can pay the minimum amount due each month.
Please note that a payment plan will cover certain interest charges and penalties. You may also have to pay processing fees to use a debit or credit card and setup fees, depending on the duration of the payment plan and whether you sign up online or offline.
3. Ask for an Offer in Compromise
An offer-in-compromise (OIC) allows you to repay your tax debt. One of the main benefits of an offer in compromise is that you'll end up paying less than you actually owe. The offer in compromise has other benefits, like avoiding asking for calls and letters from the IRS.
Applying for an OIC is a long process that requires a lot of paperwork to prove you can't pay taxes, a $205 application fee, and an advance on your bill. While your application is 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 most requests in offers for compromise. In this case, the advance will probably be applied to the balance. Registration fees may be refunded in certain situations.
If you meet the requirements for the low-income certification, you may not have to pay registration or upfront fees. Plus, you won't have to make monthly payments when evaluating your offer.
4. Claim "currently not collectible" status.
Those who cannot afford to pay their tax bills can turn to the IRS for "currently not collectible." This means that the IRS will temporarily postpone collection until your financial situation improves. Please note that this is only a temporary tag that the IRS places in your account; the status is not permanent, and in the end, you will have to pay your tax debt. (The IRS can also take legal action against you while you have this status.)
To obtain currently not collectible debt status, you will need to complete an application and provide information on monthly assets, income, and expenses.
5. Consult an expert if you can
Always confer with a tax professional before taking action with the IRS.
People don't know there are more options with the Internal Revenue Service. They assume all they have is the installment contract, where you have to pay interest and fines.
If you don't have the resources to work with a tax professional, free tax help resources can shed some light on the right options for you.
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