Taxes are unpleasant even under the best of circumstances. It is much worse if you are behind on your taxes or if you do not have enough money to pay an upcoming tax bill. For many, it leads to feelings of hopelessness. You might look at the financial situation and think there is no way to get back to even.
As stressful as being behind on your taxes can be, there are solutions. Many of them are not simple, but you wouldn’t be the first person to need help resolving issues with back taxes. The trouble for most people is that they are unaware of the various avenues for relief. With this post, we will look at some of the options people have for taking care of back taxes or an inability to pay a tax bill.
Assess the Situation
The first step is to dig into the reality of the situation. So many people just try to ignore back taxes like the problem will go away on its own. The best option is to face the issue so you can start working toward a resolution. Tax problems do not go away, and they usually get worse when you ignore them.
Gather all your tax and financial information. Start reviewing to see how much you owe and the amounts you can afford to pay. You’ll need to file back taxes if you have any unfiled returns. You will also need to determine whether it is an issue with one year or if you have a history of bad taxes.
File for an Extension
An extension can be one of the best options if the only issue is with your current tax bill. It can be a way to avoid all sorts of penalties, and it can make it easier for you to pay your taxes if you just need a little time. There are fees, but it is better than being late with your payment and incurring penalties.
There are different extensions that could be filed in different situations. For example, you can file for an extension on filing your return. There are also payment extensions. A short-term extension can provide extra time to pay, and the IRS will only charge monthly interest on the balance owed.
Pay it With Debt
If you do not have the cash to pay, you might be able to pay your tax debt with some other type of debt. Many people with tax problems might not be able to get a loan or find other forms of financing, but if you are in otherwise sound financial condition, servicing personal debt could be cheaper than having outstanding tax debt.
Taking a personal loan from a bank is probably the best option. The interest is usually lower and you can give yourself time to pay it off. Some people might be able to pay off a chunk of the tax debt using credit cards. You might also be able to borrow from your retirement account to clear your tax debts.
When a bill for back taxes grows too high, an installment plan might be the best option. With an installment plan, you work out an agreement with the IRS to pay your back taxes off a little at a time over a set period. It works for the IRS because an installment plan offers a way for the organization to recover money that might otherwise be difficult to collect.
The IRS offers several installment plan options depending on the circumstances of the individual. The amount you owe and the exact tax issue can be factored in whether you are eligible. One of the most advantageous is the IRS streamlined installment agreement. This type of installment program is designed to make it easier for people to pay their back taxes.
The IRS is also realistic about the fact that some people might not have the ability to pay their tax bills. The IRS has different hardship statuses that can apply for these individuals.
For example, you could file to have your account classified as “currently not collectible.” It doesn’t make the tax debt go away, but it will buy time for you to get your finances in order.
Another option is to seek an “offer in compromise.” An offer in compromise is an attempt to get the IRS to accept payment of an amount lower than the actual tax bill. Both hardship options are long shots, but they might work if you are in deep financial distress.
The final tip is to consider working with a tax relief company. Many of these solutions can be complicated. An error in a filing could delay relief or result in more issues that need to be resolved. They can also provide valuable advice when assessing your situation and reviewing your options.