Maybe you’ve just completed your latest tax return and discover that you can’t afford to pay it? What should you do? What will happen next? Might you be arrested and thrown in jail?
While these are legitimate concerns, there are things that you can do to limit the repercussions and prevent yourself from getting into a spot of bother with the IRS:
- Be sure to file your return before the deadline:
Even if you know that you can’t afford to pay the taxes that you owe, you must still send in your return before the filing deadline. There are two penalties that the IRS issue related to the paying of taxes, and these are for late filing and failing to pay. The penalties for filing your taxes late is much higher than those you’d be likely to incur for paying your taxes late, so it makes financial sense to file on time even if you can’t pay what you owe. Also, when you do file, pay as much of your taxes that you can, as a part payment will be looked upon far more favourably by the IRS than no payment at all.
- Know your options for paying:
Finding from somewhere the money that you owe in taxes, is something that should be done as soon as possible. Can you tap into the equity in your home, use a credit card, dip into your savings or get a personal loan? For some, borrowing from friends and family may also be an option.
- Be sure of how much time you need to pay:
There can be no better advice than to pay your taxes on time and in full, but if you know that when you receive your next pay-check you’ll be able to pay, then you could go ahead and file your return, and accept the pate payment penalty, which may amount to less than the interest you might have had to pay on a loan, for example.
- Might an Instalment Agreement be an option?
As with most rational people, the IRS would rather receive the taxes owed to them over time, than not at all, so an instalment plan might be an option for you if you’re unable to pay your bill in full. You can even set up a Direct Debit from a bank account to ensure that the whole process is made as simple as possible.
The best advice for when you find out that you owe more than you had anticipated and can’t afford to pay your tax bill, is not to panic, but instead to think carefully about your options, and if you’re not sure what your options are, then to make time to speak with a qualified tax professional who can explain them all to you in detail, and without any complicated and confusing jargon.