Do you owe money on your taxes this year? You’re not alone. It’s estimated that 30 million people will end up owing money to the IRS this year.
Owing money on taxes isn’t the end of the world though. If you keep a level head and take steps to work with the right people, you can get your taxes paid with minimum stress.
Dealing with Owing Money to the IRS
If you know you’re going to owe money on taxes, you still need to free file your tax return by the deadline. If you don’t file, you can end up with a failure-to-file penalty. This will cost you even more money in the end.
You can also forfeit certain options if you don’t file your tax return. The IRS is willing to work with people as long as you take the correct steps to work with them.
Double Check Your Return
Before you file, make sure you double-check your tax return for any mistakes. You might want to check against the previous year’s return if you haven’t had significant changes to your situation.
Make sure you didn’t add any income twice when calculating. You should also check to make sure you didn’t miss any credits or deductions you’re eligible for.
To cut down on the possibility of errors, you might consider getting help with your tax return. A tax accountant can check everything to make sure your return is in order. They can also help you find deductions you might miss to cut down on what you owe.
Contact the IRS
To reduce the penalties, it’s best to pay what you owe on federal taxes immediately. If you’re unable to pay the full amount, you should pay what you can. You should also contact the IRS immediately to work with them on getting everything paid back.
There are several options available depending on your situation. Make sure you have a good understanding of your financial situation to help you pick the best option for your situation.
Ask for an Abatement
If you’re working on paying taxes owed, you can ask for an abatement on penalty charges. You need to show that you’re working with them though. This is why it’s so important to go ahead and pay what you can up front.
Without an abatement, you will pay monthly penalties on the amount you owe. If you show a willingness to pay your bill as soon as possible, they will try to work with you. Keep in mind this option is only available if you haven’t had penalties within the last three years.
Set Up a Payment Plan
Another option if you can’t pay the full amount is to set up a payment or installment plan with the IRS. You can only do this if you haven’t had an installment plan within the last five years.
To qualify for a payment plan, you’ll need to meet some standards.
- You have to owe $25,000 or less.
- You need proof you can’t pay the full amount.
- You need the ability to pay within three years.
If you meet these qualifications you can call or fill out the online payment agreement. Keep in mind that penalties and interest are still charged until the amount is paid in full.
You can do a short term option where you pay in 120 days or less. There are also options for long-term plans if it will take you more than 120 days to pay.
What to Do If You Can’t Pay Your Taxes
If your financial situation is drastic enough that you can’t pay, even with an installment plan, you still have some options. The important thing is to contact the IRS to work through these options.
Offer in Compromise
In drastic situations, you can file for an offer in compromise agreement. This allows you to pay less than you owe. You will have to qualify and show proof that paying what you owe will cause financial hardship.
You can set up payments in two ways with this option. You can pay a lump sum up front and set up no more than five payments on the remaining balance. You can also set up monthly payments to pay off the reduced amount.
Keep in mind, filing for an offer in compromise is a lot like filing for bankruptcy. It will affect your credit situation in a similar fashion. Also, any refunds during the payment period will go towards what you owe.
Tax Relief Company
To file for an offer in compromise, you can also go through a tax relief company to negotiate. Just make sure to follow these tips when seeking a tax relief company. You want to make sure you work with a legitimate company in these situations.
A tax relief company will negotiate with the IRS for you to ensure you get all the forms filed correctly and on time. Reputable companies have tax attorneys on staff to ensure that all requirements are met.
What happens if you can’t pay any of the back taxes you owe? In certain circumstances, the IRS might temporarily delay collection efforts on your taxes. This delay can stay in place until your financial situation improves.
Keep in mind that a temporary delay does not stop the IRS from charging interest on the taxes owed. This option can also put your property in danger.
The IRS can put a lien on your property during the delay. This acts as insurance against the money owed. This ensures they have the ability to collect if necessary.
Protecting Your Finances
Owing money to the IRS is stressful. It’s even more stressful when you’re struggling to make the payments. Luckily, you can take steps to repair and protect your finances to cut down on these stressful situations.
Do you need financial tips to help you manage your money better? Check out our money page for more tips and tricks for strengthening your financial stability.