WHAT TO DO IF YOU OWE THE IRS, BUT CAN’T PAY
Tax time is exciting when you are expecting a refund. However, if you end up owing the IRS, it can be very stressful.
It’s especially stressful when you don’t have any way to pay the amount due. When people owe money they don’t have, whether it is to the IRS or a creditor, a common reaction is to try to hide from the debt. However, ignoring the debt does not make it go away. Ignoring a debt to the IRS can have particularly bad consequences.
So What Should You Do?
First, file your taxes even if you don’t have the money to pay the taxes. Filing on time is important.
Second, include a letter with your tax filing requesting a payment plan. In the letter to the IRS, suggest a payment you can afford to pay monthly. The IRS may want a higher payment, so be prepared to explain why this is the best you can do. The IRS will not accept the explanation that you have credit card bills you need to pay, but will likely be understanding if you have child support or car or home loans.
If you try to avoid or ignore the problem, the IRS will file a tax lien. They can garnish most of your income. The lien is on everything you own including your home, household goods, and any retirement. You want to avoid getting a tax lien.
If the amount you owe the IRS is significant, you may want to consider a Chapter 13 bankruptcy where you can pay your tax debt over a period of 3 to 5 years, in some cases, without interest and penalties.
If you owe more than $10,000 to the IRS, you may want to consider making an Offer in Compromise. If your Offer in Compromise is accepted, you will settle your tax debt for less than the amount you owe. You can find out if an Offer in Compromise may work for you by filling out the IRS pre-qualifier questionnaire here. There is a $186 fee to file an Offer in Compromise, and you must also include a portion of the amount you are proposing to pay.
Our firm can help you determine which of these options may be best for you. Call us today.