What to Do If You Owe Taxes and Can’t Pay Right Away

Tax season can bring stress, especially if you find yourself owing the IRS more than you can afford to pay immediately. But don’t panic! I want to guide you through some options available to help you navigate this situation and avoid unnecessary penalties.

Step 1: File Your Tax Return on Time

Even if you can't pay the full amount, it’s crucial to file your tax return on time. The IRS imposes penalties for late filing, which can be more severe than penalties for late payment. By filing on time, you prevent additional penalties for failure to file, which can add up quickly.

Step 2: Explore Payment Plans

If you can’t pay in full, the IRS offers several payment plan options, including the Installment Agreement. This allows you to pay off your balance in manageable monthly installments. To apply, you can complete IRS Form 9465, which is relatively simple. You can also set this up online through the IRS website if you owe less than $50,000.

For amounts over $50,000, the IRS may require more paperwork, but it’s still possible to work out a payment arrangement. Keep in mind that the IRS charges interest on the balance, as well as a fee for setting up the payment plan, but it’s still better than facing a lump sum payment.

Step 3: Consider an Offer in Compromise (OIC)

If paying your tax debt in full is truly impossible, you might qualify for an Offer in Compromise (OIC). This option allows you to settle your tax debt for less than you owe. However, the IRS only accepts an OIC if it believes that you won’t be able to pay the full amount through a payment plan or other means. To apply for an OIC, you’ll need to provide detailed financial information about your income, expenses, and assets.

Step 4: Check for Penalty Abatement

The IRS may also consider penalty abatement if you have a good reason for not paying on time, such as financial hardship or a first-time infraction. If your situation qualifies, the IRS could remove penalties, though you’d still be responsible for the interest on the balance.

Step 5: Seek Professional Guidance

If you're unsure which route to take, it’s a good idea to consult with a tax professional who can assess your situation and guide you through the options available to you. Navigating tax debt can be complex, and a professional can help you avoid mistakes that could make things worse.

While owing taxes can feel overwhelming, there are options available to help you manage the situation. From setting up payment plans to exploring an Offer in Compromise, the key is to take action and reach out to the IRS as soon as possible. The IRS has many tools to assist taxpayers, and with the right approach, you can work through your debt without overwhelming penalties.

If you need assistance or have questions about your tax situation, feel free to reach out to us at info@mkhstaxgroup.com. We’re here to help you navigate tax issues with confidence and ease.