If Your Tax Bill is Higher Than You Can Afford, What Should You Do?
Tax evasion isn’t a good look on you. Luckily, you have plenty of options to help you pay off a larger than expected tax bill!
Having trouble paying your taxes? You’re not alone! Many famous celebrities have been in similar situations. Also many regular people.
So you shouldn’t be embarrassed if you’re struggling to pay your taxes. In fact, you shouldn’t keep it a secret. Because that’s a good way to find yourself in some serious legal trouble. Just ask Al Capone. Oh wait, you can’t. Because he didn’t pay his taxes. (And also he’s dead.)
But you can’t just pay a tax bill with money you don’t have. And many law enforcement agencies frown upon planning an elaborate heist to rob the vaults of a casino, no matter how crooked those casino owners are.
This year, above all other, people are experiencing larger tax bills (and smaller refunds) than they expected. So what can you do if your tax bill is too big to pay? Thankfully you’ve got some options!
Don’t. Ignore it.
When faced with a tax bill too high to pay, your first impulse may be to hide behind your couch and pretend you never saw it. If you can’t see the IRS, they can’t see you, right?
Wrong! This is an understandable impulse, but not a correct one. Ignoring your taxes will only lead to greater troubles.
“If you currently owe the Internal Revenue Service (IRS) income taxes in an amount more than you can pay, there are a series of procedures to assist struggling taxpayers with resolving their outstanding tax liabilities,” assured Steven M. Packer, an accountant with Duane Morris (@DuaneMorrisLLP).
“Given that it’s tax season, filing is on the mind of many, and, if tax liabilities can’t be paid, an extra level of emotional and financial burden is added.
“However, most taxpayers are not aware of these procedures and think, mistakenly and at grave risk, that if they just ignore the problem the IRS will simply go away.
“Rest assured, the IRS will never go away, as they have their own set of procedures in place to ensure collection of the unpaid tax and will use its powers to collect.”
Double check your work.
Before you get too panicked, figure out if your bill actually needs to be as far out of reach as it seems to be.
“You can call us for free help or look at many resources available based on your specific tax situation to see if you qualify for deductions and credits, whether it be itemization or education credits.
We’ve also got a recent article that might help you find some other ways to reduce your tax burden. Just saying.
Get ahold of yourself (and the collection process).
If you’ve gone back over your taxes looking for other deductions and credits to take advantage of and there’s still a gap between what you can pay and what you need to pay, then you’ll want to reach out to the IRS as soon as possible. A good first step is preventing collection to give yourself some room to maneuver.
“Prior to the determination of which resolution option is most appropriate under the circumstances, a collection hold should be requested to gain time to review the situation,” explained Packer.
“If you agree that you owe the IRS, but you can’t pay due to your financial situation (such as being out of work or underemployed), your account may qualify as currently not collectible. This will temporarily delay collection until your financial condition improves.”
“One option taxpayers have when they cannot afford to pay their taxes is to check and see if they qualify for the IRS Hardship Program,” he explained. “This program is set in place for those who would face unfair financial hardship after the collection of outstanding taxes.
“Once you have been declared ‘currently not collectible’ the IRS cannot garnish your wages or take your property in lieu of tax payment. The IRS will work with you to sort out an alternative repayment plan in order to clear your name off the IRS delinquent tax list.
“There are several specific qualifications you must meet in order to qualify, however.”
Now you can focus on making a deal.
Working it out.
So about that payment plan…
“If you owe the IRS, a payment plan is the best way to go in order to arrange a fair amount of time to pay,” suggested Vincenzo Villamena, managing partner of the CPA firm, Global Expat Advisors. “You can go online and do so if you owe under $50,000 USD.
“This allows you to pick the amount of monthly payments you would like to make. If over the $50k, then one would need to fill out a full 433F which asks about assets, income, and monthly expenses. The IRS will determine what one can pay based on this information.
“It’s important to note in both situations that interest and some penalties will continue to accumulate while on a payment plan.”
And then there’s always settling.
“The OIC program permits qualified taxpayers with outstanding and unpaid tax liabilities to negotiate a full settlement for an amount that is less than the tax owed,” advised Packer.
And going forward, be sure to try and get your taxes done as early as possible so you’ll know if you need to pursue options like these.
Now that you’ve reached the end of this post, you’ll know not to panic if you might be a bit short of what you need. And don’t just hope the IRS will forget about you—because they won’t. Sorry.
Whatever you do, make a plan.
The one thing you really shouldn’t do with a higher-than-expected tax bill is just wing it–especially if doing so involves taking out additional debt in order to pay what you owe. That plan could leave you with no savings and extra debt: a recipe for financial disaster.
After all, it’s that kind of short-sighted thinking that leads to people relying on predatory no credit check loans and short-term bad credit loans like payday loans, title loans, and cash advances when a surprise bill or other financial shortfall rears its ugly head.
Maintaining a well-stocked emergency fund is a great way to cover something like an unexpectedly large tax bill. But even folks without one can still dig their way out if they face the problem head-on instead of running from it. Contact the IRS, make a plan, and then stick to it!
To learn more about tax-related money issues, check out these other posts and articles from OppLoans:
- Handy Tax Tips For Freelancers
- Watch Out for IRS Scams!
- Tax Refund Anticipation Loans Are More Dangerous Than You Think
- 5 Smart Ways To Spend Your Tax Refund
|Jacob Dayan is the CEO and Co-Founder of Community Tax, LLC (@communitytaxllc) and Finance Pal, LLC. He began his career in Wall Street New York at Bear Stearns working in the Financial Analytics and Structured Transactions group. He continued to work in Wall Street until early 2009. When he then left New York and returned to Chicago to be with his family and pursue his lifelong dream of self-employment. There he co-founded Community Tax, LLC followed by Finance Pal in late 2018.|
|Manisha Hansraj is a Tax Expert, Content Creator, and Marketing Specialist for Rapid Filing Services (@Prior_Tax). She has over 3 years of experience and well versed in the tax changes as well as preparing prior and current year tax returns. RFS is an online tax preparation company to file prior and current year tax returns nationwide.|
|Steven M. Packer has over 30 years of experience in accounting and auditing, federal, state and local income taxation, and human capital management. He devotes his practice to tax and accounting compliance and review, litigation consulting, human capital management and business development activities. Prior to joining the Tax Accounting Group, he was a manager with both a large regional and international CPA firm, and served as chief financial officer for an international retail and distribution company.|
|Vincenzo Villamena is the founder and CEO of Online Taxman. He has extensive experience in both tax preparation and advising clients in accounting and financial transactions. At Online Taxman, Vincenzo oversees corporate and individual filings. He specializes in offshore structuring for US entrepreneurs abroad and US real estate transactions by foreign nationals and funds. Before founding Online Taxman, Vincenzo served as partner in 4 Corners Inc., focusing on individuals and businesses for accounting and tax preparation matters as well as advising high net worth individuals in private equity investing. He has both a Masters of Accounting and Bachelors of Business Administration with distinction from the University of Michigan’s Stephen M Ross School of Business. Vincenzo loves to travel and is fluent in Spanish, Portuguese and Italian. Vincenzo currently lives in Medellin, Colombia, the location of our newest office.|