Right after New Year's I start to get that nagging feeling. You know the one. It's tax time again.
Why do I have so much anxiety about this time of the year?
It's because so often I've gotten a really, unexpectedly big tax bill. Because I'm self-employed, I get to enjoy a special kind of hell with taxes.
Now it's going to stretch me quite a bit to pay this year. I'll just have to hunker down and do it.
But what if you can't pay? What if you just don't have the money to pay your taxes? Now what?
If you can't cough it up by April 15, here are your options:
1. Pay something. First, make sure in each of these instances you've actually filed the tax return. Paying is the second part. If you think you cannot pay the entire bill, pay at least a partial payment. This will lower your costs due to penalties and interest. Once you do, the IRS will send you a tender, heartfelt note saying, "Hey, where's the rest?" At that point you can decide how you'll pay the rest.
2. Get an extension. If you think you can pay within 120 days of April 15, then apply for an online payment agreement. There are no fees, but there will be a late payment penalty that is half of 1 percent of the balance owed each month. Oh, plus interest. If you can't pay in the 120-day time frame, you can pay in monthly installments for up to 72 months. Now, for this there is a fee of $120, reduced to $52 if you want the IRS to tap your bank account automatically (I shuttered at that thought too). Again the same interest rate will be due.
3. The reduced offer. Now, you could offer to pay a lump sum that is less than you owe. It all depends on the IRS and their assessment of your situation. This option is accepted about a much as a 16 seed beating a 1 seed in the NCAA Men's Basketball tournament. So don't count on it. You'll have to demonstrate that this is a really good option for you.
4. Try to delay your payment. If your situation is so bad that you can't pay a plug nickel of what you owe or don't know when you will be able to, then the IRS might grate a delay of collection until your financial situation improves. Remember, this pile grows exponentially, with penalties and interest racking up. The IRS could put a lien on property you owe until they receive all their tax tithe. Contact the IRS at 1-800-829-1040 for more information.
5. Get some help. You could contact a tax attorney to help protect you and your assets if your situation is really bad. You could resolve the dispute with the IRS Taxpayer Advocate Service too. It's an independent group within the IRS that gives free help to people whose tax issues are causing financial harm.
The last thing you want to do is ignore the situation. The quicker you act, the better. It will save you truckloads of cash due to interest and penalties. Once you owe taxes, it's like a freight train: It keeps coming, and it will run over you.
Want to get all my financial ramblings? Subscribe here and I'll have my lazy virtual paperboy toss one in your inbox every Friday.
