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If you can’t pay your taxes on time, you’re certainly not alone. There are many people who realize too late that their withholdings during the year were insufficient to cover their taxes. There are some dos and don’ts that can help you negotiate a situation where you can’t pay your taxes on time.
First, when you know you can’t pay your taxes on time, don’t compound the problem by not filing on time. You may be charged extra fees if you fail to file by the expected filing date. If you haven’t fully prepared your taxes, take the time to file an extension to avoid being fined for late filing.
Second, don’t simply ignore the issue. The IRS can and will take many steps to collect their taxes from you. These can include garnishing future wages and/or tax repayments in the future. Furthermore, the longer you wait to pay your taxes, the more the amount will grow, due to late fees and interest accruing on the amount owed.
The IRS recommends that you use credit cards, or get a bank loan if you can’t pay your taxes on time. Most people would exercise this option if they could. Others are faced with high tax payments and not enough credit, or poor credit that doesn’t allow them to take a bank loan, so they literally can’t take this way out. Essentially then, you must work with the IRS and they become your creditor for the amount owed.
You should look carefully at what you owe when considering whether paying back taxes is worth a loan. Generally the IRS will charge you .5-1% of the unpaid taxes per month. This means you are paying from 6-12% interest on your unpaid taxes. Don’t put unpaid taxes on a credit card with a higher interest rate than this, unless you know you can pay it off quickly. You’ll end up paying more in interest rates via credit card than you would to the IRS.
Instead, when you file and can’t pay your taxes on time, negotiate a plan in writing, or even on the Internet with the IRS to make monthly tax payments. Suggest an amount that you can pay each month. When you do this type of negotiation, you must get written confirmation from the IRS that your plan is acceptable, so they don’t start charging you fees for unpaid taxes. You will still pay an interest amount, but if you can quickly pay your taxes this amount is likely to be negligible. Start making payments before you hear from the IRS, and if you have not gotten any type of written agreement from them or a counteroffer within a month, contact them again.
Sometimes the IRS will levy additional fees when you can’t pay your taxes on time. They will do this if they feel you have somehow been fraudulent in your withholdings or statement of earnings. Clearly strive for accuracy in filing returns so that your tax amount is accurate and you don’t get audited. Most times, if you demonstrate a desire to work to repay the debt, the IRS is willing to work with you, and will often take your suggested payment amount to establish a repayment schedule.
If you have large amounts of taxes to pay, you might want to visit an accountant. You may have additional withholdings you don’t know about that could reduce taxes owed. This can cost money too, but it may ultimately save you money. A certified accountant can also help you negotiate a repayment plan with the IRS, which may help reduce interest on taxes, or allows you to make a payment per month that is within your budget.
@Domido – Try not to cuddle up under a rock just yet. Is it possible that you made a mistake on your taxes? I think I’d double check my information before I did anything else. But if you find that there are no mistakes and you just owe a pretty good chunk of change, go ahead and get up with an accountant for your income tax questions. I think that you’re probably right about finding some outside, qualified help. Just make sure you’re getting a good one – maybe one recommended by friends and family. I just cringe at putting a whole lot of money on your credit card unless there is no other option...I'd see what else I could work out first. Best of luck!
So, if you owe more than you can afford it may not be the best thing to just jump right out there and put it on a credit card? Do you think it would be best to go ahead and hire an accountant to take a look at the situation before making a move? I guess my first idea of hiding under a rock somewhere is unacceptable, but who can blame me? I’m just really afraid I’m in big trouble here. My first thought is to find someone to be on my side who can help me. I used tax software to file and now I'm totally regretting it.
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