Around 2020 125 million Americans received tax refundAccording to data from the Internal Revenue Service, about 43 million Americans were left out, who either broke or gave money. Even breaking – not receiving a refund – is really good. This means you gave the correct amount to Uncle Sam. Of course, the master of taxes is another story.
If you are in financial stress this year, you might be thinking: What if I can’t pay my taxes?
Generally, you have three options:
- Get the EMI agreement.
- Request an offer in agreement.
- Do not file and pay, or make partial payments.
Everyone’s tax situation is different, and there is no one-size-fits-all strategy, so all you really need is Consult a tax professional for advice. Nevertheless, if you are looking for some guidance, experts usually recommend these three maneuvers.
1. Get on a monthly installment plan
If you are behind on your taxes, but think you can finally catch up, this is probably your most attractive option. After filing your tax return, fill one online Payment agreement application On the IRS website.
You can also mail in your taxes and include Form 9465. The form is used for taxpayers who are interested in the monthly installment plan. The IRS will give you 72 months to pay your bills, provided you owe $ 50,000 or less in combined taxes, fines and interest.
Hopefully you haven’t neglected to file your taxes in previous years, though. You cannot meet with the IRS on an installment payment agreement until you are ready to file a previous return.
“Definitely contact the IRS and go to a payment plan,” says Denise Bragger, a certified tax expert and tax attorney who owns Brazer Tax Law Group in Los Angeles. He is also a former senior trial attorney for the chief counsel of the IRS office.
“If you can’t pay the IRS anything, especially if you’ve been affected by COVID, ask them to declare your account ‘temporarily not collectible,'” Brazer says.
That said, the label is more or less a placeholder so that the IRS will know your status. Also, it will not help you much. Brazer says the IRS will still charge you interest and possibly a penalty for late payment.
Why do you want to do this: Maybe you can de-stress in the end. You will make monthly payments to the IRS, and will probably reduce your anxiety.
What could be the problem: The interest will still accumulate with the installment plan in place. If your debt is piling up, the IRS may file a federal tax lien against you and your property, which can make it challenging to obtain a decent loan.
The tricky part about paying off an installment loan with the IRS, especially if you are self-employed and need to pay quarterly taxes: when you are making your payments give back In a monthly installment plan, you still need to make payments on the current year so that you do not fall behind.
In fact, if you make too much of your monthly payment and fail to have enough budget, you can pay tax on the current year, then you can start a vicious cycle due to the IRS indefinitely.
2. Request an Offer in Compromise
This is the second way the IRS recommends that a taxpayer simply cannot pay what they are owed. In short, you make an offer to the IRS about what you think you can pay, and if they accept it, then what you pay.
According to the irs Website: “An offer in a settlement allows you to dispose of your tax debt for an amount less than your full debt. This can be a valid option if you cannot pay your full tax liability, or do so. Financial hardship arises. We consider your view. A unique set of facts and circumstances:
- ability to pay;
- Expenditure; And
- Asset Equity.
We generally approve an offer in the agreement when the amount offered represents the most we can expect to collect within a reasonable period of time. Explore all other payment options before submitting a settlement offer. “
Also worth noting: When you send your application, you will have to pay a fee of $ 205, although you can waive it if you meet the agency’s low-income certification guidelines. If you pay the money, though, and you truly believe what the IRS has to say, you can avoid the fee if you submit a Form 656-L, “settle (as a liability) Doubt) propose in “.
Why do you want to do this: You don’t want to hang this problem on your head forever, and it can be a permanent solution. Fix your financial situation.
Brazer likes the idea for some taxpayers.
“An offer in compromise is a great option. If you pay a lot of money to the IRS, you have limited assets and limited ability to pay,” he says. “Paradoxically, the more you pay, the more likely you are to be able to save money with an offer in agreement. Keep in mind that if the IRS feels that you can pay within the statute of limitations – Usually 10 years – they won’t accept. Offer to compromise. “
What could be the problem: Typically, you will pay 20% of your offer through the front – and then the rest of the installments. If the IRS accepts the agreement, and you do not stay on the agreement, it can sue you over the remaining tax debt balance, as well as penalties and interest.
3. Do not file and pay, or make partial payment
Whatever it is, if you prepare your taxes and you know a lot, do not be discouraged or file. Whether you offer a monthly installment plan or agreement or you need some time to think about what you want to do, file.
“If you can’t pay your taxes for the sake of good, send at least a partial payment every month,” says Bruce Givner, a tax attorney for Los Angeles with the KFB Rice Law Group.
“For example, if your tax liability for 2020 is $ 25,000, and you don’t have $ 25,000, mail in your return – on time – and send a check for $ 500 with it or whatever you can afford. Are, ”he says.
Why do you want to do this: First, you definitely want to send in your tax return. There can be no “no” about it. (You definitely can, Enter extension. This does not save you any money, but it gives you more time to prepare your tax.)
“If you fail to send your returns on time, this is the one Complete penalty for failing to pay, “Says Givner.” And failure to file is worse than failure to pay. This is 4.5% per month until 25% is the maximum hit. Conversely, failure to pay is only 0.5% per month. “
If you want to grope your next move, and you don’t have the money to pay your tax bill, sending some money every month on the road can reduce the fine, and that would make you feel good in the eyes of the IRS, According to Givner.
If you later try to do some work with a revenue officer in the IRS, Givner says, and the officer sees that you’ve paid or made several payments, “He’s in a much better mood, and more Is interested in creating a formal payment arrangement with you. “
What could be the problem: Not working for a long time will harm you. Your tax debt will continue to increase, and if you eventually have federal taxes payable, it will hurt your credit. You will snowball a relatively small problem into a big one.
Should you hire a tax professional?
If you are broke, and you live in a modest house and Not considered rich, Probably not. You are eventually going to give the IRS a lot of money back in taxes. Does it really even make sense to pay a tax lawyer when you can talk to the IRS over the phone and send in the forms yourself?
On the other hand, for some people, this may not be such a bad idea.
“The more complex your situation is, the more likely it is that the cost of professional help will be worth it. As a rule of thumb, if you pay less than $ 50,000, then you don’t have a business and what you Want is a payment plan, then you probably don’t need professional help, “Brazer says.
That doesn’t mean that professional help won’t be good, but you probably don’t need it.
“If you decide to pay for professional help, be sure to watch them carefully. Unfortunately, there are a lot of companies out there who will promise the moon, take your money and leave you worse than you started,” Brazer says.
To review, if you have a Current tax bill If you think you can’t pay, but you want to come up with a solution, do the following:
- Enter your taxes whether you can pay or not.
- If possible send some money to the IRS. This is not the entire amount.
- Wait to receive a letter from the IRS about your tax bill, or better yet, contact the IRS and ask about the monthly installment plan.
- If you are feeling really overwhelmed, talk to your tax professional about your situation and possibly consider compromising in an offer.