What if you can’t pay the tax?

Ok, so you owe money to the IRS.  What are your options?

1)      Ignore the bills, you can’t pay them anyway.  In fact, let’s not file any more tax returns so the IRS can’t bill you for more tax.

2)      Stay tax compliant and file all of your returns.

3)      Explore collection alternatives.

Option 1: Ignore it

This is the option a number of folks elect for a number of reasons: it’s the easy answer, they’re too scared to do anything else, they don’t know where to begin, etc., etc.  This option is the steepest slippery slope of them all because once folks begin the slide down the slope, they aren’t sure how to stop until they reach rock bottom.

What happens when one chooses to ignore the IRS bills and avoid filing more tax returns?  Well, a number of things can happen, though they won’t happen immediately.  The IRS bills go to collections and they may eventually levy your bank account and lien any property, depending on how large the tax bill is.  And when I say levy your bank account, I mean any bank account that has your name on it, even if it is your daughter’s account, or your parent’s account, thereby levying money that may not rightfully be yours (but is lawfully yours and therefore, lawfully the government’s money once levied).

What happens if you don’t file tax returns and you meet the requirement to do so?  Eventually, the IRS (and State) will file tax returns for you based upon the information they have.  If you are self-employed, the taxing agencies typically have your income information, but no information concerning your business expenses so any tax return they file on your behalf will result in significantly more tax compared to the tax return you would file.  This means that you will receive a much larger tax bill along with a 25% late filing penalty from IRS, plus interest.  By the way, if you decide to file your tax returns more than three years after they were due and somehow overpaid your tax, you forfeit your tax refund because you didn’t file in a timely manner.

The penalties are much worse for payroll tax returns that are not filed and tax that isn’t paid.  Most folks don’t realize there’s a civil penalty involved that automatically doubles the tax due if it is not resolved in a timely manner.

Option 1 is the most expensive option – don’t do it!  But, if you’re already chosen Option ,1 reach out to me and we can get this corrected.

Option 2: Stay Compliant

Keep filing those tax returns.  If those are current, you have options.  Not only will you pay less tax than if the IRS or State files the returns for you, but they are more willing to work with you concerning tax you owe.  Nearly all of the programs offered, if not ALL of them, require the Taxpayer to be current on filed returns.  This is a great opportunity to learn to budget for the tax you suspect you’ll owe by the end of the tax year.  Plus, if you are actually due a refund, you can claim it in a timely manner and potentially use it to offset any other tax balances you have.

Option 3: Collection Alternatives

The IRS offers Installment Agreements, Offers in Compromise, and Uncollectible Status options for those who qualify.  Many States offer similar programs.

Installment Agreements typically allow you to pay the tax you owe over 72 months, making it a bit more budget-friendly than trying to pay it back in a lump sum.

Offers In Compromise are much more tricky to negotiate but there’s a possibility that you can pay only a fraction of the tax you owe.

Uncollectible Status is available for those who are low-income and delays the collection of tax until you are able to pay.

 If you or someone you know has an issue with paying their federal taxes and needs help to end their IRS nightmare, please contact me by call or text (916) 439-9373.

For related video:

https://youtu.be/Bkl1z0RydQM?si=trc-P4MYTg5TEq-V