Tax time creates extra stress for a lot of people, and the stress becomes even more intense if you end up owing taxes at the end of the year. Finding out you owe money for taxes is even worse if you’re already under financial stress. Ignoring the problem and hoping it will go away isn’t the answer. Here’s what to do if you can’t afford your tax bill.
File on Time
It can be tempting not to file at all when you know that you’re going to end up having to pay a tax bill, but that sets you up for a failure-to-file penalty. Filing an extension gives you more time to file, but it doesn’t give you more time to pay. If you or a tax preparer finishes your tax return and it shows you owe a balance, make a partial payment toward what you owe. Whatever you’re able to pay toward the balance is less you’ll have to pay interest on.
Request a Monthly Installment Plan
To sign up for a monthly payment plan toward what you owe, fill out an online payment agreement application through the IRS website. If you owe less than $50,000, you can apply for either a short-term payment plan to pay your taxes over 180 days, or a long-term installment agreement that finances what you owe over a term of up to six years. It’s important to note that you may need to pay a setup fee along with accrued interest and penalties.
Apply for an Offer in Compromise
For this approach, make an offer to the IRS of the total amount you can afford to pay. If they accept it, that satisfies the total debt. The IRS will consider your income, expenses, and ability to pay. You’ll have to pay a $205 fee upfront to apply for this option. If you meet the low-income criteria, you may be able to have the fee waived.
Borrow the Money for What You Owe
If your credit is good, you may want to consider applying for a personal loan so that you can pay the tax bill in full upfront. This takes away the stress of having a debt to the IRS hanging over your head, and it may save you money in penalties and interest.
Protecting Your Credit
A tax bill is just one example of an unexpected expense that you may have when you least expect it. Taking care of your credit helps you to be prepared to face whatever stressful situations come along. To protect your credit, always pay your bills on time and avoid borrowing more money than you can afford to pay back.
It’s important to check your credit report at least annually to make sure everything on it is correct. Errors on your credit report can bring down your credit score and make it difficult to borrow money for an unexpected expense when you need it. Dovly is an automated credit repair engine that can help you with this process. Try it risk-free with our free membership tier. Contact Dovly today.