Disclaimer: ClearOne Advantage does not offer tax advice. Please consult with your accountant or tax professional for advice regarding your specific tax situation.
If you owe the IRS more than you can pay this year, don’t panic. Read on for possible solutions if you can’t pay your taxes.
What Happens If You Don’t File Taxes
You should still file your 2020 taxes even if you can’t afford your federal tax payment because you may open yourself up to penalties if you don’t, raising your tax bill even higher. Keep in mind any unpaid balance is subject to penalties and interest, on top of the fees for failing to file on time. Keeping your principal low may be able to help lower these penalties and interest fees.
There was a late Covid Extension this year so taxes will be due May 17; penalties and interest fees for any unpaid balance start accumulating May 18. If you don’t think you’ll meet the deadline, you can still apply for a regular extension, but you will still need to pay an estimate of your tax bill.
By avoiding filing your taxes, you may not know what you actually owe, or maybe even what you are owed. Even if you do owe money to the IRS, you may get a refund for your state taxes that could cover some or all of your federal tax payment. If you qualify, you may be able to file your federal taxes for free through the IRS website. Filing for free could allow you to put a little extra toward your tax bill.
Filing your federal taxes on time could also potentially lead the IRS to be a little more forgiving when you apply for one of the following programs.
Set Up a Payment Plan with the IRS
The IRS offers payment plans to make it easier to pay in installments when you owe in taxes, although with both extended plans, you will be responsible for accrued penalties and interest until your balance is paid in full.
You can apply online to get your payment plan started but you can also apply by mail, phone, or in-person. Before you apply, learn more about the payment plans and consider talking them over with a tax specialist or accountant.
Long-Term Payment Plan
The long-term payment plan offers monthly installments to pay off your federal taxes as agreed upon by the IRS. Those who owe $50,000 or less in taxes, penalties, and interest combined and also filed all required returns can apply online. You may have a fee when you apply, but it may be reimbursed if you are eligible for low income status.
Short-Term Payment Plan
With a short-term payment plan, you agree to clear your federal tax payment in 180 days or less, or 120 days or less if you are applying online. There are currently no set up fees for this type of payment plan when you apply.
Request an Offer in Compromise
With an offer in compromise, you may be able to settle what you owe the IRS for a lesser amount. However, this method does require a $205 application fee up front that may be reimbursed based on your finances. The IRS determines eligibility based on:
- Ability to pay
- Asset equity
See if you are eligible for an offer in compromise at the IRS’ pre-qualifier.
What Else Can You do When You Can’t Pay Taxes
Regardless of which option you choose, you will need to pay off your federal tax payment at some point. If you have any other debt as well, this may be a great opportunity to start paying it off by cutting back on bills or even earning extra income. Any extra money that you can put toward your tax bill will most likely be a huge help!
Although ClearOne Advantage can’t help with tax debt, we may be able to assist if you are struggling with credit card debt. Our Certified Debt Specialists are standing by to help you explore your debt relief options and work out a solution customized just for you. Call 866-481-1597 to speak to a Certified Debt Specialist today and get a free savings estimate.