Have you completed your tax return and realized you can't pay the amount you owe? While employees have income tax deducted from their paychecks, self-employed individuals and business owners must pay taxes independently. In an ideal situation, you'd pay taxes quarterly to owe a lower amount by the tax deadline or receive a refund.
Of course, this isn’t always possible. But if you choose to pay your entire tax bill at the end of the year and don't have the financial resources to pay, you could find yourself in an unfortunate situation. In this instance, the IRS may attempt to collect your tax debt by charging you interest or fines and, in exceptional circumstances, inflicting jail time.
So what can you do to avoid these penalties? Today, we'll give you a few tips on how to respond if you cannot pay your tax debt by the tax deadline — just remember to consult a legal professional for further information.
What to Do If You Can't Pay Your Tax Debt
You're not alone if you’ve been surprised to discover how much money you owe in taxes. Recent surveys show that 28% of Americans don't know why they owe taxes, and about three-quarters of Americans are stressed about their tax bill. Moreover, 29% of Americans say that they won't be able to pay their taxes by the deadline.
Fortunately, there are a few options available if you cannot pay your tax debt in full, such as:
Ask for an extension to pay. You can file an extension to pay, giving you up to 120 additional days to pay your tax bill.
Agree to a payment plan. If you cannot make a lump sum payment, consider agreeing to a payment plan with the IRS. Depending on your situation, you can set up simple agreements online or complex agreements that require you to submit documentation.
File "currently not collectible" status. Sometimes, you can file for a deferment known as a "currently not collectible” status. If you can prove that you're experiencing financial hardship, you can postpone payment until your circumstances improve.
File an offer in compromise (OIC). An OIC is a settlement of your unpaid taxes. If you meet the qualifications, you can pay less than you owe. People typically file an OIC when they have trouble paying for living expenses.
The consequences of tax evasion are steep. If you fail to pay taxes, your tax debt accrues interest, and you may be subject to liens on your property or the garnishment of your wages. Assess your options carefully with the assistance of a legal professional to ensure the best outcome possible.
Manage Your Tax Debt with Ahmad Law
Sophia Ahmad Law, APC was founded in 2016 in the San Francisco Bay Area. We specialize in tax, corporate, and immigration law and represent both businesses and individuals locally, nationally, and internationally.
Ready to get help with all of your tax and immigration needs? Get in touch with us here.
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