First off, if you cannot afford to pay your tax bill, do not panic. There are options available but there are some key things you want to ensure you are doing.
What Do I Need To Know If I Cannot Afford To Pay My Tax Bill?
Make sure at a minimum you complete a few important items.
- Ensure you still file your tax return (or request an extension) by the deadline.
- The worst thing you can do is avoid filing a tax return all together as this will just make the penalties and interest that much worse. You would now have Failure To File AND Failure to Pay penalties with interest.
- Pay as much as you can with the tax return (or extension) filing to avoid penalties and interest as much as possible.
- Remember an extension is NOT an extension of time to pay, just an extension of time to file.
- For information on extensions check out our article from last week.
- Understand you are not alone, this can be common especially with small business owners.
- Do NOT just avoid the situation. It can be stressful but do not allow yourself to simply ignore the situation.
- If you extend your return be sure to file your return by the final deadline, regardless of ability to pay. Failure to file penalties can be brutal!
What Happens If I Do Not Pay My Taxes On Time?
Lets talk penalties and interest…
- Failure to Pay Penalty
- 0.5% per Month (Maximum 25%) of the tax owed after the due date
- If IRS issues a notice of intent to levy or seize property, the rate increases to 1% per Month.
- Federal Short-Term Rate Plus 3% – Compounded Daily
- The interest is also on any penalties.
What Options Are Available To Pay My Taxes?
Borrow, payment plan, etc.
- Borrow the Funds
- Consider borrowing the funds needed to pay your taxes. Often times you can get a better rate on borrowing than what the IRS will charge.
- Be careful with this and make sure you are making a good decision based on the interest rate comparison.
- Short-Term Payment Plan or Installment Agreement
- Agreement with the IRS to pay your taxes over time.
- You can apply for an Installment Agreement using Form 9465 or
- Apply Online
- If you get approved for a payment plan ensure that you stick to the payments and do NOT miss them!
- Offer In Compromise (OIC)
- Agreement between taxpayer and IRS that resolves a taxpayer’s tax liability based upon a lower agreed upon amount.
- Note this may sound easy but it is a lengthy process and nothing that is for sure. The IRS will dig into everything (your income, your assets, etc) and determine whether you can afford the tax bill or a payment plan.
- The IRS has a pre-qualifier tool to see if it would even be worth your time exploring this.
If you are faced with a big tax bill you can always reach out to our team to discuss options and see what may be the best route for you.
For more details on this along with additional training and tax strategies to ensure you are paying the least amount in taxes as legally possible, check out our Tax Minimization Program!
If you don’t have an accounting or tax advisor (or you need assistance with anything discussed), click here to book your complimentary strategy session with JETRO.