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What Do I Do If I Can't Pay My Tax Bill?
What Do I Do If I Can't Pay My Tax Bill?
Igor Tutelman, CPA
Aug 24, 2024
If you find yourself unable to pay your tax bill, don't panic! You have several options to consider. In this article, we will explore the various choices available to you as a taxpayer, including setting up a payment plan with the IRS, requesting an Offer in Compromise, and seeking penalty and interest relief. We'll also provide guidance on how to take advantage of these options, ensuring you're well-equipped to tackle your tax obligations. Let’s get started.
What are your options?
It's not uncommon for taxpayers to face financial difficulties that prevent them from paying their taxes on time so the IRS has prepared for these situations and has given you options. These are some options that most taxpayers can explore:
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Set up a payment plan with the IRS
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Request an Offer in Compromise from the IRS
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Seek tax penalty and interest relief
Understanding these options can help you determine the best course of action for your specific circumstances. Let's explore each of these in detail.
How to set up a Payment Plan with the IRS
If you can't pay your tax bill in full, the IRS offers payment plans that allow you to pay your taxes over time. To set up a payment plan, follow these steps:
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Determine your eligibility: Generally, individuals who owe $50,000 or less and businesses that owe $25,000 or less in taxes, penalties, and interest can apply for a payment plan online on the IRS website.
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Choose the type of plan: The IRS offers short-term and long-term payment plans. Short-term plans are for those who can pay their tax bill within 180 days, while long-term plans are for those who need more time.
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Apply online or by mail: Visit the IRS website to apply for a payment plan online, or complete and mail Form 9465, Installment Agreement Request.
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Receive approval and make payments: After the IRS approves your plan, you'll make monthly payments until your balance is paid in full.
Remember to file your tax return on time, even if you can't pay the full amount owed. This will help you avoid additional penalties and interest. And most importantly, an extension to file is not an extension to pay. You should still pay whatever you can afford to pay when you file your taxes to reduce your penalties and interest charges.
How to request an Offer in Compromise from the IRS
An Offer in Compromise (OIC) allows you to settle your tax debt for less than the full amount you owe. The IRS considers your unique financial situation when evaluating an OIC request. To request an OIC, you will need to:
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Determine your eligibility: You must be current on all required tax filings and not be in an open bankruptcy proceeding.
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Complete the necessary forms: Submit Form 656, Offer in Compromise, and Form 433-A (OIC) for individuals or Form 433-B (OIC) for businesses.
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Select a payment option: You can either do a lump sum cash payment or a periodic payment. With the lump sum payment you must submit 20% of your total offer with the application. With a period payment, you have to send the first monthly payment and continue to send monthly payments per your proposal until the IRS approves or rejects it.
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Pay the application fee and initial payment: Include a $205 application fee and your initial payment as per your proposed offer - both of these are nonrefundable.
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Wait for the IRS decision: The IRS will review your application and make a decision based on your financial situation and ability to pay.
Keep in mind that OIC acceptance is not guaranteed, and the process can be lengthy. Make sure you have an experienced tax professional on your side for an OIC to increase your odds of success.
Tax penalty and interest relief
In some cases, you may qualify for penalty and interest relief if you can show reasonable cause for not paying your taxes on time. To request relief, you can write a letter to the IRS explaining your situation or complete Form 843, Claim for Refund and Request for Abatement.
There are also special one-time abatements like the First-Time Abatement (FTA). This abatement covers failure to file, failure to pay, and failure to deposit penalties. However, it’s a one-time abatement, so if you use it, you lose it!
Conclusion
If you're struggling to pay your tax bill, remember that you have options. By exploring payment plans, requesting an Offer in Compromise, or seeking penalty and interest relief, you can manage your tax obligations while minimizing financial stress.
To get personalized advice on your specific situation and find the best solution for your tax concerns, schedule a free consultation with Iota Finance. Our team of experienced professionals will help you navigate your options and create a plan tailored to your needs, ensuring that you can confidently address your tax obligations and regain control of your financial future. Don't let tax debt hold you back – reach out to Iota Finance today and let us help you chart a course toward financial stability and peace of mind.