Tax Debt: Exploring the Ways to Resolve Tax Debt with the IRS
Various federal and Florida state taxes may pile up if you fail to pay them on time. On top of that, you will also have to pay interest and penalties on the taxes you failed to pay on time. Although not paying your taxes is not a criminal offense but a serious misdemeanor.
However, just because you’re unable to pay taxes before the deadline does not mean that you have to wait the whole year for the next due date; there are several options to resolve a tax debt. You can also seek help from a Pompano Beach tax accountant to find a solution.
File your tax return even if you can’t pay
Highly unpredictable economic scenarios and situations like recession can cause individuals to not have enough money to pay taxes. However, despite the unavailability of the money to pay taxes, experts advise you to file taxes.
Ignoring your tax will further worsen the situation. Failing to file taxes by the deadline will accrue a penalty of 0.5% of the unpaid taxes, subject to a maximum of 25% of the balance tax.
Explore your options to pay taxes.
Here is how a tax accountant can help you find a solution for the taxes you owe but are unable to pay:
Reach the IRS for an installment agreement.
- Set up an instalment agreement with the IRS, which depends on your situation, how much you owe, and how soon you can pay the balance tax.
- You must submit a Form-9465 with the requisite fee of $149.
- Low-income taxpayers are required to submit Form-13844 with the application fee of $43.
- You don’t need to submit a financial statement for an instalment agreement of $50,000 or less.
- Form-433-A or F may be required if the balance exceeds $50,000.
Request short-term extension
- The IRS may provide a short-term extension of up to 120 days to allow taxpayers to pay balance taxes beyond the deadline.
- Requesting for an extension does not require any fee. However, penalties on the unpaid taxes @0.5% per month will continue to accrue.
- You have to complete an online agreement and then contact the IRS.
- While a short-term extension allows you to avoid paying installment agreement fees, you’ll still have to pay the penalties and interest.
Request a hardship extension.
- You can apply for the ‘currently not collectible status’ and ‘offer in compromise’ with the IRS.
- You can only qualify if you establish that paying the balance taxes would cause you financial hardship.
- Applying for a hardship extension costs nothing. While your balance tax will not attract penalties, it’ll accrue the interest.
Final takeaway
Apart from the remedies mentioned above, you can apply for a personal loan to pay your taxes, borrow money from your 401(K) account, or pay using a credit card. However, the best solution is to consult an experienced and skilled CPA to help settle the overdue taxes.