Tax season always carries a sense of dread and stress, especially for those who can’t afford taxes when the IRS calls. It’s estimated that citizens of the United States owed over $114 billion in back taxes and penalties in 2020, so it’s no surprise that many can’t pay taxes without giving up essentials like food and housing.
It’s fair to wonder about your options for tax relief if you need help gathering the money to pay your taxes when April arrives. Getting tax help is a wise start, but you deserve to know your options if you’ve concluded that you can’t pay taxes this year.
Fortunately, you’ve discovered this practical guide to learning your options for tax relief if you lack the funds to pay your taxes. Continue reading to find the best path for your tax needs today!
Short-Term Payment Extensions
An excellent option to consider if you’re worried about paying your taxes is a short-term extension. This option is best for taxpayers who need a few months to get their finances together to pay what they owe. Your short-term extension will last up to four months, giving you time to pay your taxes without facing penalties.
It’s similar to choosing an installment option for paying your taxes. You’ll accrue interest if you ask for an extension, but it’s a small price compared to the severe penalties the IRS can impose. It’s also free to set up an extension, and the process is simple if you owe less than $100,000.
Installment agreements are another viable option when you can’t pay your taxes. You won’t pay what you owe in full, but the IRS will require you to make monthly payments until the debt is fulfilled. If you can afford a smaller monthly payment, installment agreements are your best option.
Guaranteed installment agreements are best if you owe less than $10,000 in taxes. You’ll get three years to pay back what you owe. You’ll need to meet specific requirements, but this option comes with guarantees from the IRS.
Streamlined installments are excellent if you owe $100,000 or less on your taxes. You can repay this amount over 84 months and apply online for this extension if you owe less than $50,000. Working with a tax professional to set up this extension is wise if you can’t pay your taxes.
Use an Offer in Compromise
An offer in compromise is worth considering if you worry you can’t pay taxes. It’s perfect to use when you still owe money to the IRS. No one relishes negotiating with the IRS, but this option allows you to settle your tax obligation for less money. You’ll need to prove that you cannot pay your tax bill or that your taxes were incorrectly assessed.
It’s a tax payment option that the IRS is strict with. Only pursue an offer in compromise if you have the best tax assistance and proof that you can’t pay what you owe. It’s almost only possible to attain this option with professional tax help.
Get Hardship Status
Hardship status provides tax relief because the IRS declares that your account is not collectible. You’ll need to show proof that you lack the resources to pay your tax bill to attain hardship status for your annual taxes. The IRS uses its guidelines on what you must live when determining if you qualify for hardship status in a given year.
The cost of rent, food, clothing, and transportation determines these guidelines. A lack of funds for these essentials will help you get hardship status and a clean slate when you can’t afford taxes. Individuals with less than $25 in disposable income each month are prime candidates for tax hardship status.
You’ll apply for the hardship, and the IRS will begin evaluating your financial situation. They’ll stop collecting money if your status is approved, allowing you to get off the hook for the money you owe. The IRS will review your financial situation every two years to determine if your financial situation has improved.
Borrow From Friends and Family
There are better options than this, but borrowing money from friends and family is worth considering to pay what you owe when you can’t afford your taxes. Ask these people you’re close to for a loan to make your tax payments with a promise to repay them. It’s an excellent route to take when you need short-term tax help.
Small business owners and entrepreneurs should consider this path for tax relief. It’s the perfect solution if you’re counting on a payment from a client that will hit your bank account after taxes are due.
Take Out a Loan
If you cannot secure the money to pay your taxes from friends and family, consider taking out a personal loan from a bank or credit union near you. You can use the funds from the loan to pay your tax liability. Compare your personal loan’s interest rate with the IRS payment plan before submitting your application.
File for Bankruptcy
Filing for bankruptcy is also possible if you can’t pay taxes during a given year. A bankruptcy attorney will help you determine if what you owe is dischargeable, though you’ll take a massive credit hit by taking this step.
The type of bankruptcy you’re filing for carries different penalties and rules. Ask for tax help when filing for bankruptcy to ensure your taxes get discharged.
Know Your Options When You Can’t Pay Taxes
Tax season is riddled with stress, but life is much easier when you know your options when you can’t pay taxes. Short-term payment extensions and installments allow you more time to build up your finances and make the payments you owe to the IRS. You can also use an offer in compromise or apply for hardship status to get the tax relief you need during a given year.
Are you ready to explore your financial options? Start reading more of our technology and education articles for beneficial tips today!