If you can’t afford to pay your IRS taxes, you should reach out to your accountant for help. A certified public accountant (CPA) or another tax pro can help you explore the different options and negotiate with the IRS for a payment plan. While we can’t give you tax advice, we can help if you’re wondering what to expect if you can’t afford to pay. Here’s what you need to know.
1. You should still file your return.
Even if you think that you can’t afford to pay your taxes, you should still file your return. For personal income tax returns, the fees for not filing are much higher than the fees for paying late. This also applies to most business tax returns.
By filing, you let the tax agency know that you’re aware of the tax obligations. Then, you can contact them about making arrangements for the bill. If you don’t file, you will incur higher penalties and potentially even face tax evasion penalties.
2. You can often set up a payment plan.
The IRS and most state tax agencies allow you to set up payment plans on your tax debts. If you owe less than $10,000, you can set up a payment plan with the IRS online. You don’t have to provide much information to get accepted.
If you owe more, you may need to contact the IRS directly or provide more financial details with your application, but the IRS accepts payment plans on bills that are tens of thousands or even a hundred thousand dollars. With most payment plans, you can take several years to pay off the balance.
3. You may be able to get out of tax debt for less than you owe.
If you really cannot afford to pay your tax bill, you may be able to settle it. Through the offer-in-compromise program, the IRS lets people settle tax debts for less than they owe. To qualify, you generally have to pay the most you possibly can.
You may need to sell assets or take loans against them. If the IRS agrees with your offer, you usually have to pay it in a lump sum, but in some cases, you can take a few months to pay the offer.
4. You can typically stop IRS collection actions if you can’t afford to pay.
The IRS can be harsh, and the agency has a lot of powers to collect unpaid taxes. However, the IRS is also reasonable. You can apply for hardship if you truly can’t afford to pay the tax bill.
If you qualify, the IRS will stop collection actions against you. Then, the agency will review the situation every few years. If you can afford to pay in the future, you may have to, but if the statute of limitations passes on the debt, it may just basically disappear.
5. You should work with a tax professional.
Dealing with the IRS and state tax agencies can be challenging. The rules are complicated. There are a lot of deadlines, and you may have to provide detailed financial information.
An accountant can help you decide which programs are best for your situation. They can help you decipher the paperwork and set up the best arrangements for your situation. An accountant can also ensure that you don’t incur more penalties or fall more behind than you need to.