Late for a Very Important Date

What happens if you are unable to pay your taxes on time? Are there other options for you? Don't panic, that is what we will be discussing! 

Tax Day will be here on Wednesday, April 15, 2020, if we are ready or not. You can file your taxes as soon as you get all of your W2s, 1099s, and other tax forms from your employers. One of the perks of filing early is getting that prized tax return early. You should receive it within three weeks of filing. If you file your taxes sooner than most, you won't be fighting against the crush of everyone else who waited until the last moment to get everything filed. But what happens if you've filled out all your tax paperwork and you can't pay what you owe the IRS? What happens if you don't fill out your paperwork and file on time? Take a breath and let's review some options out there for you. 

• The Bottom Line 

First of all, there are options for you so don't panic. If you are unable to pay on time, immediately file for an extension. Once you do this, you have to pay attention and stay on top of your extension just like you would any of your bills. Please know that there are penalties if you don't pay on time and a separate penalty for not filing on time. Not being able to file on time is a much larger penalty than not being able to pay on time. Failure to file is 5% of the money due per month and can go up to 25%. Failure to pay is .5% of the money due up to a max of 25%. If you can't pay right away, at the very least fill out and file your taxes. This way you are aware of how much is due and can hopefully avoid some of these penalties. But interest does add up until your tax bill is paid in full. 

• Possible Options 

Try and find some options to help you pay on time. See if you can borrow money from family to help pay, get an advance on your next paycheck, or sell items you no longer need or use anymore. You can dip into your savings if you need or even tap into your 401(K). These aren't ideal options, but they will help you in the long run. You can pay your taxes with a credit card, but to do this you have to contact a special service provided through the IRS. You will be charged a continuance fee to do so and that adds up to be about 2.5% of what you're already paying. You will also incur interest charges if you can't pay off the credit card payment quickly. 

• Not Quite Enough 

If you can't come up with the money and you don't have a credit card to use, you can work out an installment plan with the IRS. You will need to fill out form 9465, the Installment Agreement Request, and attach it to the front of your income tax return. You might even be able to request a payment plan online. This doesn't mean you can avoid paying interest on what you still owe. This interest will still accrue until everything is paid off. But in this situation, the IRS can reduce any failure to pay penalties. 

• Not Even Close 

If the amount you owe is so large and there is no way possible that you will be able to pay, there is a program called Offer In Compromise, where the IRS may take less than the full amount that you owe. To do this you need to complete form 4334 and 656, along with a collection information statement. You will also need to provide a total financial statement. This includes a list of everything you own, all of your debts, your income, and the amount you can pay right away to make a compromise with the IRS. The IRS will then review this information to see if they will accept the compromise. You are required to pay all tax liabilities on time for the next five years for this compromise. If this requirement is not met, the whole original amount of your taxes will be your responsibility again, more penalties will be added on, and the IRS can get money from you in many other ways that could hurt and damage your credit score, like filing a lien on your property. 

• Options

The IRS website tells taxpayers not to panic if you can't pay on time, and lays out the general options for you. The big thing they stress is to file on time and then contact them right away to talk about your money situation. Don't hide from them. They will find you one way or the other, you won't fall through the cracks. The IRS can temporarily delay collection by reporting your account as currently not collectible until you can pay, in some circumstances. But they will be more willing to work with someone who is upfront and comes to them rather than those who hide or lie to them. What can help in the long run is making sure the right amount is being taken out of your paychecks, so the amount owed at the end of the year isn't as painful. If you operate as an independent contractor, save a percentage of every paycheck to make up for the fact that no one is taking anything out for you. 

Not being able to pay your taxes can cause huge amounts of stress and panic, but try and not let it. Just make sure you are using the options and resources available to you. You will make it through this tax season, and many more to come! For more information and help from the IRS follow the link below!  

https://www.irs.gov/newsroom/what-if-i-cant-pay-my-taxes

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