Owe Taxes? Can't Pay Your Tax Debt?
Do you have financial difficulties during these tough economic times? If so, then the last thing you need is to add the IRS to your list of headaches. So you've just prepared your taxes--or you have not started working on your tax return, but you know with certainty that you will have to pay taxes and that you cannot afford to pay the total amount due on time. Want to remove that constant stress hanging over your head? Luckily, the IRS has already taken measures to help taxpayers in your exact situation. Here are some tips for getting yourself in the clear:
How to Pay the Taxes You Owe if You Don't Have the Money
First of all, don't panic! Next, don't delay! Take a deep breath and try to figure out how much of your tax debt you can actually afford to pay now.
You should always file your tax return on time to minimize your tax penalties. Even if you can pay nothing, you should file on time to avoid a greater penalty. Likewise, you should always pay as much as you can in order to minimize penalties, because your penalties will be based on the amount you still owe. Learn more about tax penalties.
Even if you file a request for an automatic extension of time to file, this only extends the deadline for filing your return--not the deadline to pay any taxes you owe!
Ways to Pay off Tax Debts
If you have a balance due on your tax return, you may want to consider getting the money through other means. But be careful: This is only a good idea if any interest you end up paying is less than the interest and penalties the IRS will charge you.
Whether you owe hundreds or thousands, you should really ask yourself, "Can I obtain this money?" Have you thought about using your credit card or tapping your savings account? Are you able to cash out your paid time off from work? You might be able to borrow against your retirement account. Here are some options to consider:
Charge your tax debt on a credit card
Borrow the money (bank loan, home equity loan, etc.)
Liquidate savings accounts, stocks, bonds, etc.
Sell assets (vehicle, real estate, etc.)
You should also consider setting up a payment plan with the IRS.
Set up a Tax Payment Plan
If you cannot scrape up the funds to pay your amount due in full when you file your return, the IRS has options for you. If you wish to pay off your debt over time, an installment agreement may be the payment plan for you. Learn more about installment agreements
If you owe a large amount of tax and do not believe you will ever be able to pay off the entire amount, you may be able to settle your tax debt for less than the full amount with an offer in compromise. Learn more about offers in compromise.
More information about how to pay your taxes
How to Avoid Owing Taxes
The best way to avoid owing taxes when you file your tax return is to carefully manage your income tax withholding or estimated tax payments throughout the year. Here are some steps you can take:
Find out what your tax withholding should be by using an IRS tax withholding calculator
Withhold more tax from your paycheck by submitting a new Form W-4 to your employer
Withhold more tax from your pension payments by submitting a new Form W-4P to the payer
If you make estimated tax payments, increase them by submitting a new Form 1040-ES to the IRS
For more information on these options, see Publication 505 - Tax Withholding and Estimated Tax and Publication 919 - How Do I Adjust My Tax Witholding?