As the extended July 15 tax deadline approaches, you may wonder how you can afford to pay your taxes this year. When you owe more than expected, the IRS does provide options so you can spread out your debt over time.
Consider these strategies to cope with unpaid tax debt.
First, you should always file your taxes on time, even if you cannot pay. This prevents you from accruing late fees and penalties. If you think you can pay your taxes in full within 120 days of July 15, 2020, you can request a Full Payment Agreement through the IRS website.
If you need more than 120 days to pay the tax balance, you can request a longer payment plan by filing an Installment Agreement Request along with your tax return. It may take some time for the IRS to approve your request, so send your proposed payment amount each month in the meantime. You can opt to make your payments by payroll deduction or automatic bank transfer.
Offer in compromise
If you do not think you can repay your taxes even with a monthly payment, you may qualify for an offer in compromise. With this arrangement, the IRS agrees to settle your tax debt for less than you owe. However, you must provide detailed financial information to show that payment would cause significant financial hardship. The IRS offers a prequalification tool online.
Currently not collectible status
You can also request currently not collectible status from the IRS. As with offer in compromise, you must show evidence of your financial situation to prove financial hardship. In addition, CNC status is subject to periodic review. Payments and interest continue to accrue during this forbearance period.
If you have credit card debt and other obligations in addition to tax debt, you may want to explore a bankruptcy filing. Depending on your economic circumstances, this step can discharge or reorganize eligible debts so you can rebuild your financial well-being.