When you can’t pay your taxes on time or in full you have various options available to you. This year, more than ever, taxpayers are receiving tax bills that they are unable to pay. The IRS is well aware that there are situations that arise that will make it difficult for everyone to comply with their tax obligations. For this reason the IRS has created various methods that are available to the taxpayers to pay back the taxes they owe without causing severe financial strain.
The IRS is pretty particular as to what methods they allow certain people qualify for. There are some methods that just about anyone can qualify for and then there are methods that you need to prove your financial situation through various complex form filings and detailed financial statements. Below are three common methods used by individuals that do not have enough money to pay the IRS in full for the taxes they owe.
- Installment Agreement Payment Method : An installment agreement is the most common method used by taxpayers to pay back their taxes when they cannot pay in full. An installment agreement is fairly easy to qualify for and does not require a very detailed filing like other methods. An installment agreement allows the taxpayer to pay back the taxes they owe in monthly increments until the balance is paid off. There are various forms of installment agreements and the one you use is dependent upon how much you owe in taxes. If you owe under $10,000 and can pay off the amount in a period less than 3 then a guaranteed installment agreement should be used. If you owe less than $25,000 in taxes and can pay off the entire tax balance in a period of less than 5 years then it is best to file for a streamlined installment agreement. If you owe over $25,000 in taxes you will be required to file for a financially verified installment agreement which requires a bit more paper work to show you will financially be able to make the minimum payments required.
- IRS Financial Hardship delay of Collections Method: If your financial situation is to the point where you cannot pay your taxes and you can’t even make the minimum payments required with an installment agreement then proving financial hardship to the IRS could be an option. When someone proves financial hardship they are declared temporarily uncollectible. When they receive this status the IRS does not pursue collections on the individual for a time being. This is only a temporary tax relief method but it does allow the taxpayer some time, often years, to try to improve their financial situation. When one’s financial situation has been improved enough then the IRS will require the taxpayer to pay back the taxes they owe.
- Offer in Compromise Tax Settlement Method: If your financial situation is to the point where you cannot pay your taxes owed and don’t think you will ever be able to pay the taxes owed then an offer in compromise may be for you. With an offer in compromise the taxes owed can be negotiated for less. The amount that they are negotiated for should be equal to or greater than the amount the IRS would ever expect to collect from you, even through forced collection mechanisms. This is a very detailed filing with a low acceptance rate. It is suggested that you hire a tax professional to help you with this kind of filing if you feel you meet the requirements.
If you know you will not be able to pay your taxes it is a good idea to work with the IRS as soon as possible on order to come up with a resolution. If you do not put in place a resolution you will be charged with various penalties and interest after the due date for taxes. If you are unsure of what resolution method to use it is a good idea to talk with a tax relief professional.