Don’t Delay Filing Your Tax Return Because You Can’t Pay!
If you’re thinking about not filing your taxes by April 15 because you can’t pay what you owe right now, think again! If you delay filing your tax return and you owe money, you will get hit with late fees, monthly interest and penalties from the IRS not to mention all the nasty letters you will receive in the mail!
You do have other options — you can put the payment on a low-interest credit card, borrow the money from family or friends and pay no interest, set up payment arrangements, or request an “offer in compromise” from the IRS. The IRS will give you up to 72-months to pay the amount due (time depends on the amount due), but be aware that any tax refunds that you may be eligible for in the future will be applied to that unpaid balance until it is paid in full. If you don’t think you will ever be able to pay what you owe, you can negotiate or have your CPA negotiate an “offer in compromise” where you pay only a portion of what you owe.
By either paying in full or making payment arrangements with the IRS now, you will avoid the late-filing penalty, normally five percent per month based on the unpaid balance, that applies to returns filed after the deadline. The IRS interest rate is currently three percent per year, compounded daily.
If you file and don’t make payment arrangements, don’t ignore a tax bill! The IRS may take collection action if you ignore the bill. Contact the IRS right away to talk about your options.
You can make monthly payments to the IRS through an installment agreement if you’re not financially able to pay your tax debt immediately. However, you will reduce or eliminate the amount of penalties and interest you pay and avoid the fee associated with setting up an installment agreement if you pay your tax bill in full.
Before you Apply:
File all required tax returns;
Consider other sources (loan or credit card) to pay your tax debt in full to save money;
Determine the largest monthly payment you can make; and
Know that your future refunds will be applied to your tax debt until it is paid in full.
Fees for setting up an installment agreement:
$52 for a direct debit agreement;
$120 for a standard agreement or payroll deduction agreement; or
$43 if your income is below a certain level.
Individuals: apply for an installment agreement:
Apply online if you owe $50,000 or less in combined individual income tax, penalties and interest;
Complete and mail Form 9465, Installment Agreement Request (PDF);
If you owe more than $50,000, complete and mail Form 9465 and attach Form 433-F, Collection Information Statement (PDF);
Call 800-829-1040 or the phone number on your bill or notice.
Small Businesses: apply for an In-Business Trust Fund Express installment agreement
Apply online if you owe $25,000 or less in payroll taxes;
Call the IRS Business and Specialty Tax assistance line 800-829-4933;
Call the number on your bill or notice
More information
Understand your agreement, avoid default
To keep your account in good standing:
Pay at least your minimum monthly payment when it’s due (direct debit or payroll deductions make this easy);
Include your name, address, SSN, daytime phone number, tax year and return type on your payment;
File all required tax returns on time;
Pay all taxes you owe in full and on time (contact us to change your existing agreement if you cannot);
Continue to make all scheduled payments even if we apply your refund to your account balance; and
Ensure your statement is sent to the correct address, contact us if you move or complete and mail Form 8822, Change of Address (PDF).
If you don’t receive your statement, send your payment to the address listed in your agreement.
There may be a reinstatement fee if your agreement goes into default. Penalties and interest continue to accrue until your balance is paid in full. If you are in danger of defaulting on your payment agreement for any reason, contact the IRS immediately. The IRS will generally not take enforced collection actions:
When an installment agreement is being considered;
While an agreement is in effect;
For 30 days after a request is rejected, or
During the period the IRS evaluates an appeal of a rejected or terminated agreement.
Offer In Compromise Option
An offer in compromise allows you to settle your tax debt for less than the full amount you owe. It may be a legitimate option if you can’t pay your full tax liability, or doing so creates a financial hardship. The IRS will consider your unique set of facts and circumstances:
- Ability to pay;
- Income;
- Expenses; and
- Asset equity.
They generally approve an offer in compromise when the amount offered represents the most they can expect to collect within a reasonable period of time. Explore all other payment options before submitting an offer in compromise. The Offer in Compromise program is not for everyone.
Make sure you are eligible before you apply for Offer In Compromise Option
Before the IRS will consider your offer, you must be current with all filing and payment requirements. You are not eligible if you are in an open bankruptcy proceeding. Use the Offer in Compromise Pre-Qualifier to confirm your eligibility and prepare a preliminary proposal.
If you are one of our clients, call us immediately. There may still be time to process an extension for time to file, even though you may owe money. If you do owe money, we will process your application for a payment agreement. If you are considering an “offer-in-compromise,” we most likely can negotiate a better settlement for you than if you try to handle it by yourself. Call us at 559.924.1225 today.
