|What are my options if I canít pay my taxes?
Q: I finished my taxes and I owe money to the IRS. I do not have the money to pay them by the deadline. Should I file an extension?
A: Filing an extension gives you additional time to file a tax return, but does not extend the deadline to pay your taxes. The IRS may charge you penalties and interest for any payments made after the deadline, which for this year is April 17. Make sure you file the return by the deadline. There is an additional penalty for not filing the return by the deadline.
The first thing you should do is look for sources of money you can use to pay the government. Potential places could be an equity loan on your house, using credit cards, savings, or loans from friends or family.
If you can pay the debt no later than 120 days after the deadline, you usually do not need to contact the IRS. They will send you a letter in the mail and let you know what the penalties and interest total.
If you can’t pay before the 120-day deadline, you could consider setting up an installment agreement. If the amount owed is less than $25,000, you should use Form 9465 to request an installment agreement. If the amount owed is greater than $25,000 but less than $50,000, use Form 9465-FS. If the amount is larger than $50,000, you will be required to submit financial statements to the IRS before an agreement can be set up.
A final option offered by the IRS is called an “Offer in Compromise.” This can be an involved process and is only for extreme circumstances. You may have seen many TV offers that suggest you can pay pennies on the dollar. Many of those charlatans are bankrupt or under investigation.
My final caution is that you should never ignore a letter from the IRS. Ignoring the IRS does not work and the IRS actually is fairly easy to work with if you communicate with them. If you do not reply to letters, they will continue the collection process and it will not be as easy to stop later.
Tim Mayclin is a CPA with over 30 years of experience. He can be contacted at 584-1040.