With hard times, like the pandemic, many will have difficulty paying their taxes. What can you do? You have options.
File Your Return
Things will get worse if you don't file your return in a timely manner. You are required to file your return correctly and in a timely manner. If you fail to do so, not only will you have taxes to pay, but you will add to it the failure to file penalty, the failure to pay penalty, and interest. Both the penalties and interest can continue to accrue until you pay your taxes in full.
Get a Loan to Pay Your Taxes
If you can get a loan at a reasonable rate and pay your taxes you will probably be better off than making payments to the IRS. If your taxes are not paid in full you will be looking at, assuming you filed on time, a failure to pay penalty and interest. Typically, you will be better off getting a loan to pay your taxes again if it is at a reasonable interest rate. This is usually your best option and usually you will wind up paying less than making arrangements with the IRS. Of course you can pay me to help you make arrangements with the IRS to pay your taxes but unless you are really financially make payments then you are probably better off getting a loan than you would be making payments to the IRS. This assumes we are talking about the current year taxes.
For taxes on prior years, after the penalties have been fully accrued then your best option may be to arrange to make payments with the IRS. Also if you are unable to make the payments due to a financial hardship you may want to explore some the options list below under Other Options.
Pay What You Can
By filing your return you open up many options that are only available if you are in compliance with income tax obligations. But before we address those options you can buy some time to pay your taxes. You can typically file your taxes and pay what you can by the April 15th deadline. Even if you file an extension your taxes are still due by April 15th as the extension is for filing your tax return and not for the actual payment of the taxes.
Request More Time to Pay
If you don't pay all of your tax due by April 15th then certain things will happen. After you file and pay what you can the IRS will send you a notice for the taxes, penalties, and interest due to date. Typically, if you need more time you can call the IRS and ask them for more time. In the past they have given taxpayers 120 days until which they will not proceed with collection activity (normally this is the case, but of course I have clients who claim they never got the first letter which is a subject for another post) but the interest and penalties can continue to rack up during this time. Then, after the extension of time, you can look at other payment options. Sometimes taxpayers choose this route because they expect they will be in a better position to pay due to a job or bonus or some other event.
If you still can't pay the full amount due you can typically work out an install agreement with the IRS. There are two types of Installment Agreements: one where you automatically are given a certain number of months to pay without providing any information and another where you have to provide your full financial picture to the IRS. For both of these options you must first be in compliance with the IRS, which means having filed your tax returns and have been making required payments.
If an Installment Agreement won't work for you, you may be able to get put in a currently uncollectable status or get an offer in compromise. Again to get pursue either of these options you must be in compliance with the IRS and you will need to submit detailed financial information to the IRS. For these options there are strategic decisions that are very important to help you get the best result.
These options are very involved and there is a lot to discuss and strategies that can be pursued. Which ever option you wish to pursue you may want help working this out with the IRS. I have been through this before and I would be glad to help to you. To get started use my email address below to arrange an appointment to have an initial consultation. We can do the consultation over the telephone, or using Zoom, or another option.
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Be careful when reading about tax law and its application, including my articles, because the wording and definitions are such a challenge and are influenced by writers perspective, specifically his own clients situations that he is mindful of and other situations the writer is not thinking of. The point is talk to your CPA about your situation and circumstances and don't rely on or make conclusions based on articles you read, including articles form irs.gov, because concepts and definitions are not very clear, and of course, they are subject to change. Now is the time to be having discussions about your situation and developing strategies for you and your business. Again, contact me using my information above to discuss your situation. I help business owners all over the U.S. and in foreign countries with their tax returns.