It can happen to anyone, whether a business owner or an entrepreneur. You may have miscalculated your taxes at the beginning of the year — or simply experienced a financial shortfall. Either way, you can’t pay your tax bill. What do you need to do now?
Don’t Panic: It’s Not as Bad as You Think
The IRS can come across as a boogeyman. To some extent, they should. If you don’t pay your taxes, they can initiate liens against your property, empty your bank accounts, and take your wages. But there’s a very important reason you shouldn’t be too scared of them:
The IRS doesn’t actually want to do any of that.
The IRS wants to work with you. They don’t benefit from taking harsh action. It’s just more work for them. They only take aggressive action when people don’t communicate with them. And that brings us to lesson one…
Get an Accountant and Get Your Documents in Order
Your first step is to reach out to an accountant to find out exactly how much you owe. Your accountant can talk to the IRS for you and help you with negotiating a payment plan. Importantly, you have to file all your tax returns before you can negotiate a payment plan. That’s why it’s so critical to find tax help.
Once your tax returns have been filed, payment plans can be applied for online if you owe less than $50,000. Otherwise, you will need to file more extensive paperwork, which outlines your debts and income. It can take up to 30 days for approval, but once you’re on the plan, you’ll be in the clear from additional negative actions.
Getting on an IRS Payment Plan
Under an IRS payment plan, you tell the IRS how much you can afford every month. The IRS then creates a plan for you to pay off your debt over time. An IRS payment plan can be over six years. But you should also know that you need to remain current on your taxes during this time, or the payment plan could be recalled. The payment plan could also be recalled if you miss a payment.
IRS payment plans are auto-deducted from your bank account until they have been paid off. It’s easy, but you do need to make sure you’ve got the amount to pay it every month.
Alternatives to the IRS Payment Plan
An IRS payment plan is almost always going to be better than borrowing money and paying off the IRS. The interest rates and penalties are quite low, comparatively. But those aren’t the only two solutions available.
Another optional together is a settlement. Sometimes, you can ask the IRS to settle your debt for less than you owe. If you owe $20,000, you might be able to claim hardship and pay only $12,000. But this is extremely dependent on your financial situation and it’s a little more challenging to do than a payment plan — and, of course, you need to have the cash at hand.
It’s actually not hard to get on an IRS payment plan. It’s much easier with the right tax support. And while it’s not an ideal scenario to be on an IRS payment plan, it’s much better than dodging their calls.