Tax season is a time of financial reckoning that has the potential to either make us feel on top of the world or like we’ve hit rock bottom. If you’ve found yourself in the latter category, staring at a tax bill you’re currently unable to pay, you may be feeling a sense of panic setting in. But breathe deep – all hope is not lost. There are a number of strategies you can utilize to tackle this obstacle without incurring more debt or inviting unnecessary financial strain.
In this blog post, we’ll be exploring five practical methods to help you handle your tax obligations, even when you don’t have the immediate cash.
Payment Plans
When confronted with a tax bill you can’t pay, the first step to consider is setting up a payment plan with the Internal Revenue Service (IRS). The IRS offers a few different types of payment plans, each designed to cater to various financial situations.
An Installment Agreement is the most common option, allowing you to make monthly payments until your tax debt is paid off. If you owe less than $50,000 in taxes, penalties, and interest and have filed all required tax returns, you can typically apply for this online. If you owe more than that, it gets a bit more complicated, but it’s still doable.
Another option is the Temporary Delay, which the IRS may grant if they deem you in severe financial hardship. This delay suspends collection activities until your financial situation improves. Of course, you can also find more tips on this blog post.
Offer in Compromise
An Offer in Compromise (OIC) is an agreement between a taxpayer and the IRS to settle a tax debt for less than the amount owed. This could be a viable option if you owe more in taxes than you can reasonably expect to pay within the foreseeable future.
However, getting an OIC approved isn’t a walk in the park. The IRS looks at your income, assets, expenses, and ability to pay to make their decision. It’s also worth noting that you must be current with all filing and payment requirements to be considered for an OIC.
Borrowing Against Your Assets
In some situations, it may be advantageous to borrow against your assets to pay your tax bill. If you own a home, a home equity line of credit (HELOC) could provide you with the funds needed to pay your tax debt. This could be a better alternative to letting your debt sit unpaid, accruing penalties and interest.
Similarly, if you have a 401(k) or other retirement account, you might consider borrowing against it. However, this should be a last resort as it can significantly impact your future financial health.
Credit Card Payment
Though not typically recommended due to high-interest rates, paying your tax bill with a credit card is an option.
If you’re considering this route, make sure to compare the interest rates of your credit cards with the combined penalty and interest rates of the IRS. If your credit card offers a lower rate, it might be worth it, especially if you can pay off the balance quickly.
Engage a Tax Professional
Engaging a tax professional to help you navigate your situation can be a great asset. A professional can guide you through options like an Offer in Compromise or an Installment Agreement, and they can also help you negotiate with the IRS.
With their knowledge of tax laws, they can offer advice tailored to your specific circumstances and potentially save you a significant amount of money.
In Conclusion
Paying taxes can be a stressful endeavor, especially when you’re facing a bill that exceeds your available cash. However, as we’ve explored in this post, several viable solutions can help alleviate this burden. From setting up payment plans to engaging a tax professional, these strategies offer a ray of hope in navigating this daunting task.
Remember, the worst thing you can do is ignore the problem, as it will only get worse with time due to penalties and interest. Instead, approach the situation proactively and explore your options. Even in the face of financial hardship, there are ways to meet your tax obligations without going under. Now that you’re armed with these five methods, you’re well on your way to finding a solution that best suits your needs.