What do experts suggest to do when you cannot pay your taxes?
Life works in mysterious ways, and we can’t all be experts at everything. This may mean that sometimes you can find yourself at a point where you cannot pay your taxes. You’ve done all the math, and the amount you will have to give back to the government when tax season comes around is way too much for you to afford. What can you do in this situation?
There are a lot of tax experts out there, but since you’re low on money, you cannot afford to get one right now. This is why we have gathered all the best expert advice around so you too can benefit from it free of charge. If you’re wondering what you can do in this case or you have a plan, but there are some pressing questions that loom over your head and add to your stress, we may have the answer for you.
Continue reading to find out the answers to some of the most pressing questions regarding the hard-to-tackle issue of when you cannot pay your taxes, and the top solutions experts recommend have for you!
Let us know if you’re prepared for this tax season or if you need some extra help!
Can you go to jail for not being able to pay your taxes?
This is one of the concerns that many Americans have when they discover they are unable to pay their taxes this year. But you don’t have to worry about it. The simple answer is that no, this is very unlikely to happen.
Not only will the IRS not start investigating you unless you fill out a fake tax return (which means you’d be committing tax fraud), but the other reason you can go to jail is if you fail to file your taxes for years on end. That’s a foolproof way of landing yourself in jail.
As long as you try to work out something with the IRS and are transparent about your situation, the chance of you going to jail is slim to nonexistent. If it ends up being that bad, you may want to hire a tax professional to help you lessen the stress since you’d have someone in your corner.
Do you still have to pay taxes if you’ve faced some hardships?
As we mentioned earlier, life is very unpredictable, and if you live in one of the areas of the country that is prone to natural disasters, you may not be able to file your taxes on time. Or even have any paperwork remotely ready. But don’t worry, you can file for an extension and get more time to be able to prepare everything. Unfortunately, it won’t help you pay those taxes, but maybe the extra time you will get will help you prepare better.
If you happen to be caught in any natural disaster, the best course of action experts recommend is to check the IRL website and look at the lists of communities that can get this extension. But any extra time is welcome when you’re in a tight spot, so you have to take whatever help you may get.
Do experts recommend you hire a tax professional?
It all depends on the amount of taxes you owe and how much you can afford at the time.
After all, experts are pretty split on this, but they do agree on one thing: if you’re not considered wealthy, and you’re living in a modest but comfortable home, you probably don’t need a tax professional. It wouldn’t make sense to pay someone to file some forms you can do yourself after a call with the IRS, especially if you’re stripped of cash, and you’re already faced with the problem of not being able to pay your taxes.
A general rule of thumb would be that if you don’t own and run a business, owe the IRS more than $50,000, and if you want to work something out with the agency, you shouldn’t be getting a professional to help you. However, if your situation is very complicated and you find it too complex to make heads or tails of it, you should ask for professional help so as to not miss anything.
Generally, you should be able to make do with one of the solutions we detail below, but if you do choose to ask a tax professional for advice, make sure you vet them before you commit to working with them. Unfortunately, there are way too many companies out there that are only out for your money, only to leave you worse than when you started when you went to them for help.
Even if you are in a rush, do your due diligence and don’t fall for any too good to be true promises. If it sounds too good, most of the time, it means you will be scammed.
Solution #1: Offer to compromise with the IRS!
This one is suggested by both experts in the field and the people working at the IRS. It may be the case that while you cannot pay all the taxes you owe in full, you will be able to pay part of them or even half! If that happens, you may be able to strike a deal with the IRS, as you can make them an offer stating what you think you can pay from your total tax amount, and if they agree with it, that’s all you’ll have to pay.
Generally, this option will let you settle for an amount that will satisfy the IRS, and it will give you the opportunity to settle your tax debt without any other penalties. When the experts from the IRS look into whether they will take your offer or not, they will look at the unique circumstances and other facts of your particular situation, which include income, expenses, ability to pay, and any asset equity you may dispose of.
This is a solution that, contrary to what any of us would think, allows you to vary the sum you pay the more you owe. However, you have to make sure the offer is fair, and it matches what the IRS believes they will collect from you according to the data they have on you. This, along with whether you fit the statute of limitations (meaning if the IRS experts think you are able to pay in 10 years what you owe in full), will determine if they accept this offer or not.
Despite this, experts still recommend that you explore all your other options before you take the road towards this one. Yet, it’s always good to know it exists (along with the $205 fee when you make the application, which, if you are low on income, may be possible to get rid of).
Solution #2: Make sure you file, no matter if you pay or you just partially pay!
No matter how urgent the situation, do not despair; now is not the time to panic. Even if you think you cannot pay all your tax liability, you should still make sure you mail in your return form by the date you should, together with a check for how much you can spare at the time. This not only shows benevolence on your part, but it is way better for you in the long run than waiting for the deadline to come and pass you by.
Experts say that sending a partial amount from your total is way better than not paying anything at all and that you should never, ever forget or omit to send your tax return (you can always opt for an extension, but it doesn’t mean that you will owe less money).
This is in part due to the penalties that both these options attract: if you don’t send your return by the last day, you will end up being hit with a penalty of 5% per month until it reaches the maximum of 25%. If you couldn’t pay your taxes before, imagine just how much bigger the sum would be with 25% added interest! If you send the return on time and make just partial payments, the failure to pay penalty is 0.5%.
It’s still some sort of penalty, but not that bad. What’s more, experts always recommend you send the return and make whatever payments you can each month. In the long run, the tax will not get written off, and if you put it off, it will just keep on growing, and it will snowball much faster. If you keep on having big tax liens, your credit score will also start to be affected.
Solution #3: Try to get on an installment plan!
This one may be the best option you’ve got, especially since it is also one of the ones experts value the most. While it is very distressing and anxiety-inducing to know you cannot pay your taxes in full when you have to, this option is the most appealing to most since it won’t mean you aren’t paying anything and getting in trouble, but you’d also be slowly working towards making a full payment.
After you have filed your tax return, go online to the IRS website and fill out the application for a payment agreement; this is the first step towards acquiring an installment plan. Or, if you already know you want to use this option, you can include Form 9465 with your taxes to let them know from the start that you are interested in this option.
Provided everything goes well, the IRS will allow you 72 months to pay your bill in full. However, there are some limitations: you have to have less than $50,000 to pay in combined tax, including any penalties and interest added to the amount. Moreover, if you’ve already missed paying taxes from last year, you will not be granted an installment plan until you pay those.
Make sure you monitor your situation carefully, and if you think you are eligible for such a plan, experts always suggest filling out the form. It won’t lower the cost, but it will give you some peace of mind and make that huge sum not seem as intimidating as before.
There are a lot of solutions to your problem, despite it sounding like you will just be in debt for the rest of your life. And the best way to go about it, as all experts recommend, is to familiarise yourself with both the way taxes work and what you can do in case you’ve hit a bump in the road.
Not only will you be prepared for anything, but you’ll also know how to expertly handle everything! Not to mention, you can always call IRS customer support and discuss your situation. There’s always a solution if you give it a little bit of thought and don’t panic!
If you’re curious about taxes, find out more about whether or not the IRS can audit you whenever they please here!