As 2020 approaches, your mind may be on the impending tax deadline. If you expect to owe taxes and are unsure about how to pay the IRS, you do have options.
Learn about steps to take when you cannot afford to pay your 2019 tax obligations.
File an extension
If you think that you can pay if you have more time to earn the money, you can request more time to pay your tax bill. The IRS may grant an extension of up to 120 days, which moves your due date from April 15 to mid-August. Keep in mind that even if you cannot pay on time, you still must file taxes on time. Otherwise, the agency will add a 5% penalty to your balance.
Ask for a payment plan
The IRS offers several installment plan options for taxpayers who have underpaid their tax balance. Depending on the amount you owe, your history of filing taxes on time and other factors, you may be eligible for monthly payments. IRS payment plans are currently subject to a 12% annual interest rate.
Request an offer in compromise
You may be able to settle your IRS debt for a portion of what you owe. However, you must have demonstrated financial hardship and make a reasonable offer to receive approval.
In certain circumstances, filing for bankruptcy can clear old tax debts. If you file for Chapter 13 bankruptcy, the court trustee will include the tax debt in your repayment plan. Some taxpayers can receive a discharge of tax debt with a Chapter 7 filing, as long as the IRS assessed the debt more than 240 days before your filing. Eligible taxpayers must also file required returns for the past four years, and the tax debt in question must be at least three years old.
Regardless of the route that makes the most sense for your finances, you should act quickly when you owe IRS debt. Failure to address the situation will result in increasing penalties and accruing interest.