If you can’t pay your income tax by the deadline, the most important advice is not to pretend the problem doesn’t exist. You can’t solve it by not filing and you will have to pay any taxes you owe.
If you face the issue head-on, you can sort out the problem. Many people have faced problems of this nature and come out the other side. It helps to have an understanding of what your options are as well as the penalties and interest you will incur for late payment.
File by the due date even if you can’t pay
Due to the Coronavirus epidemic, the deadline is now July 15, 2020, but even with the extra time, you shouldn’t delay filing. It is important to work with an experienced tax professional as soon as possible if you’re in trouble. Fortress Tax Relief experts will assist you and help you to find ways to address your particular situation.
Nothing should prevent you from filing even if you can’t afford to pay your taxes right now. You are able to file for an extension to give you more time to file but this does not apply to payment and you will incur interest and penalties if you pay late.
A failure to file penalty is assessed at a higher percentage rate than the failure to pay the penalty. It is usually 5% of the amount you owe for each month that your return is late. In addition to penalties, you will also have to pay interest on the amount of tax you owe until the amount is paid in full. The interest rate is set quarterly and equals the federal short-term rate plus 3%.
Pay as much as you can by the deadline
Wait until the deadline to pay and find every way you can to pay as much as you can, even if it means selling certain items to do so. You will probably have a month or two before the IRS contacts you to address what you still owe. In that time, you need to keep paying as much as you can towards the total amount. This will help you to reduce the interest.
If you don’t manage to pay it all by the time you’re contacted, the IRS is likely to allow you to pay off the rest of the amount in installments according to what you can afford on a monthly basis. If you have filed your return, you are able to request an installment plan by mail, telephone or online.
If you haven’t filed your return yet, you can attach a written request for a payment plan to the front of your return. Once you file your return and receive approval to pay your tax in installments, the interest rate you will pay on the amount you owe is 0.25% for every month in which the agreement is in effect.
An offer in compromise
If you owe so much you have little chance of repayment, the IRS may accept less than the full amount. This is the last resort and the IRS expects you to consider all other payment options first. You will have to submit your income, expenses, assets and liabilities and the IRS will determine what you can reasonably be expected to pay.
Working with a tax professional can help you to avoid a situation where you can’t afford to pay your taxes. There are solutions to most of the tax issues you may think are insurmountable because you don’t have the required knowledge or experience to address them.