 For the first time in my life, I owe the government money back in taxes. As a self-employed person, I am learning the tax formsropes and did not understand the benefit of paying quarterly taxes. As a result, I owe, I owe so off to work I go. But what happens if you owe big but do not have the money to pay what you owe?
The first rule of thumb is: Do not ignore the situation. File your taxes online and on time or you risk even bigger trouble. The IRS will impose penalties that, when added up, can total up to almost half of your original tax bill. If you couldn't pay in the first place, could you imagine trying to cover another half of the amount in addition to the original amount?
First, make sure you file your taxes on time, whether you efile taxes, pay your taxes online, or pay them the old fashioned way, and send in as much money as you can with your return. When you figure out how much money you still owe, consider these options to consider when you need to pay more than you can.
Ask for an Extension
You can request a short-term extension by filing an online payment agreement with the IRS. If you are eligible, you can receive between 30 - 120 additional days to pay your tax bill. You will need to prove to the IRS that the extension will assist you in fulfilling your obligation. This option will typically result in lower penalties ad interest fees than an installment agreement.
Set Up an Installment Plan
For people who are experiencing issues paying their taxes for the first time, filing Form 9465 with the IRS will allow you to establish a payment plan with monthly payment terms that fit your financial situation. The IRS loan must be paid in full within three years and there is a one-time fee charged for the arrangement, which may be reduced if you arrange payment by direct debit payment or if you also make less than a certain amount. Outstanding balances on this arrangement are subjected to interest charges.
Make a Deal with the IRS
For some situations, the IRS may be open to negotiating a deal to fulfill your tax obligation. This is called an OIC (Offer in Compromise) and involves a lump-sum payment that is less than the total tax amount you owe. There is a $150 application fee to request an OIC so it does not become a stall tactic for people who owe taxes. You need to negotiate an amount that is reasonable based on your ability to pay. Offers that are accepted will place the application fee as a credit toward the payment amount. OIC are subject to the IRS's review of your financial situation and your future income. The reality of this option however, is the decision is more often than not a "no" and very few people are considered eligible.
Charge It
The government will accept credit card payments in order to cover your tax obligation. Using a Discover, MasterCard, American Express or a Visa, you can use a credit card no matter how you plan to file. There is a fee associated with this method that benefits the credit card processing company. Obviously, it will be just as important that you pay off your credit card balance to avoid paying over the limit and interest fees.
Whichever option you choose, make sure you file everything on time or the situation will only get worse and the situation will keep hanging over your head for a long time to come. |
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