What Happens If You Can T Pay Your Taxes

What Happens When You Can't Pay Your Taxes? - Roger Rossmeisl, CPA

It’s the scariest thing you’ve ever heard - the words “You can’t pay your taxes”. But don’t panic yet, as there are steps you can take to help ease this difficult situation. In this blog post, I’ll explain what happens if you can’t pay your taxes, and how to go about getting the money together to pay the IRS.

Have an IRS Payment Plan in Place

The first step to take when you can’t afford to pay your taxes is to set up an IRS payment plan. This will let you spread your tax bill out over time, making it easier to pay off. You can apply for an installment agreement online or by phone if you meet certain requirements.

One of the most important things to remember when setting up an installment agreement is the need for accurate information. The IRS will need specific details in order to process your application, so make sure you check your records for accuracy. Additionally, be sure to adhere to the terms of your agreement, as the IRS can revoke your agreement if you fail to pay on time.

Although setting up a payment plan reduces the amount of money you’ll owe in taxes, it does come with its own cost. The IRS will charge a fee for setting up the plan, and you’ll also need to pay an annual interest rate on any outstanding tax debt. Additionally, the IRS may place a lien on your assets until the agreement is satisfied.

Consider Obtaining a Loan

Another option for paying your taxes when you can’t afford them is to get a loan. This can be a good option if you have a good credit score and don’t mind taking on some additional debt. When considering a loan, make sure you calculate the cost of the loan carefully, as the interest may end up being more than you owe in taxes.

When taking out a loan, make sure to shop around for the best terms and interest rate. You may be able to find a loan with a longer repayment period than an IRS payment plan, which can make it easier to pay off your tax bill.

It’s also important to be mindful of the effect a loan can have on your credit score. Depending on the details of the loan, the debt may show up on your credit report and could affect your score for years to come.

Ask For a Hardship Extension

The IRS does understand that some taxpayers are unable to pay their taxes, so they do offer a certain level of leniency in certain circumstances. You may be able to request a temporary hardship extension if you can’t pay your taxes right now, but you will be able to make the payments in the future. This can buy you some much needed breathing room in order to get your finances back in order.

It’s important to note that this type of extension will only be granted in certain cases, and certain criteria must be met. The IRS will need evidence that you are dedicated to paying off all taxes owed, so you’ll need to have a reasonable payment plan for the debt to be approved.

You should also be aware that requesting a hardship extension won’t stop the current penalties or interest from accruing. The penalties and interest will continue until the tax debt is paid off, so it’s important to put together a payment plan as soon as possible.

Get Professional Help

If you are having trouble paying your taxes, it can be helpful to seek the advice of a professional. A tax attorney or a CPA with tax experience can help you put together a payment plan or give you advice about the best way to pay off your taxes. They can also provide advice on how to deal with penalties and other ramifications of not paying your taxes on time.

This route can be costly, but if you want to ensure your taxes are paid correctly and in full, it can be worth the expense. Plus, if your case is complicated, a professional can make sure you don’t get caught up in any legal issues from the IRS.

Accept the Consequences

If – after taking the necessary steps – you still can’t afford to pay your taxes, the IRS will take the necessary action to collect the debt. This may include garnishing your wages, levying your bank account, or even taking legal action. Once you’ve received a notice of the consequences, make sure to contact the IRS as soon as possible to try and come to an agreement.

The most important thing to remember is to not ignore the situation, as this will only make matters worse. Stay in communication with the IRS, stay on top of the paperwork, and take the necessary steps to reduce the amount of money you owe.

Conclusion

When you hear the words “You can’t pay your taxes”, you likely feel overwhelmed and helpless. But there are steps you can take to ensure you pay your taxes on time and manage your tax debt. Have an IRS Payment Plan in place, Consider Obtaining a Loan, Ask For a Hardship Extension and Get Professional Help or Accept the Consequences if necessary. The important thing is to stay in communication with the IRS and negotiate when necessary.