What to Do If You Can't Pay Your IRS Tax Debt: Expert Advice
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Tax season can bring its fair share of stress, especially if you find yourself unable to pay the full amount of taxes owed by the filing deadline. The good news is that there are options available to help you manage your tax debt responsibly. Here's a comprehensive guide on what to do if you can't pay the IRS the money you owe.
1. File Your Return on Time
First and foremost, even if you can't pay the full amount you owe, it's crucial to file your tax return on time. Failure to file your return by the due date can result in a separate penalty. Therefore, gather your financial documents, fill out your tax forms accurately, and submit your return before the deadline.
2. Pay What You Can
While you might not be able to cover the entire tax bill, paying as much as you can by the due date is recommended. This helps reduce the overall amount you owe and minimizes the interest and penalties that will accrue on the unpaid balance.
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3. Explore Installment Agreements
If you're unable to pay your tax debt in full, the IRS may allow you to set up an installment agreement. An installment agreement allows you to pay off the remaining balance over time in monthly payments. To see if you qualify, attach Form 9465, "Installment Agreement Request," to the front of your tax return. The IRS has streamlined the approval process for amounts under $25,000 that can be paid off within five years. Remember that there is a $43 fee to set up an installment agreement, and you'll be required to pay interest and a late payment penalty on the unpaid balance.
IRS Installment Plan
4. Consider the Reduced Late Payment Penalty
Filing your return on time and paying as much as you can can lead to a reduced late payment penalty. The standard late payment penalty is 0.5 percent of the balance due per month. However, if you file on time and don't receive a levy notice from the IRS, the penalty drops to a 0.25 percent rate when the IRS approves the installment agreement.
5. Explore Offer in Compromise
In some cases, you might find it impossible to pay your tax debt, even through an installment plan. If this is the case, you can apply for an "offer in compromise." This program allows you to settle your tax debt for less than the full amount owed. The IRS will evaluate your financial situation and future income potential to determine if your offer is acceptable. To apply for an offer in compromise, complete Form 656, "Offer in Compromise," and Form 433A, "Collection Information Statement."
IRS Offer in Compromise
6. Utilize Online Resources
The IRS website (www.irs.gov) is a valuable resource for determining your eligibility for installment plans or offers in compromise. Interactive sections on the website can guide you through the process and provide the necessary forms. You can also download forms or request them by calling 1-800-TAX-FORM (1-800-829-3676).
7. Seek Professional Assistance
Navigating tax debt can be complex, and seeking the advice of a tax professional or consultant can provide you with tailored guidance based on your individual circumstances. A tax expert can help you understand your options, guide you through the application processes, and ensure you make informed decisions about managing your tax debt.
In conclusion, facing an inability to pay your IRS tax debt can be daunting, but it's important to remember that there are options available to help you manage the situation. Filing your return on time, paying what you can, exploring installment agreements, and considering an offer in compromise are all steps you can take to address your tax debt responsibly. Utilizing online resources and seeking professional assistance can further guide you through the process, ensuring you make the best decisions for your financial situation.