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What Should I Do If I Can't Pay My Taxes?

Don't Panic!

Here at Valentine CPA, we will provide you the best advice on what to do if, for whatever reason, you find you can’t pay your taxes. We are here to help. Below are some basic guidelines and methods to get your taxes paid while reducing any penalties and interest. We are happy to help you with any of these needs.

File your tax return by April 15.

Personal income taxes are due in full on April 15. If you anticipate owing taxes, it’s easy to postpone the filing until you have the means to pay or you may decide to not even file the return.

  • If you can’t meet the April 15 deadline to file your return, apply for a six-month filing extension. Tax returns filed after April 15 are subject to the late filing penalty if no extension is in place.
  • This extension is acquired by filing Form 4868. Remember: this only extends your window to file, not your time to pay.
  • Be sure to file the return before the six-month extension expires. Missing this due date makes you subject to a late-filing penalty, which can be up to 25% of the amount of tax due.
  • To avoid this late-filing penalty, try to pay at least 90% of your taxes due by April 15 and subsequently pay the full amount by the extension due date on October 15th. Otherwise, you may also be subject to a late payment of up to 25% of your tax liability.

Pay as much as you can with your tax return.

Even if you can't pay the entire amount, pay as much as possible when you file.

  • Every single dollar you pay cuts down on interest charges and reduces any possible late-payment penalty.
  • Pay as much as you can as early as you can. The same principle holds if you owe because of an audit or IRS notice.

Consider using your credit card to pay your tax liability in full or get a loan.

  • The fees and interest rate charged by a credit card company or lender could be lower than the penalties and interest the the IRS may charge you.
  • Be sure to determine the total cost of any credit card or bank loan before moving forward with this option.
  • The bank or credit card interest you pay will generally not be tax deductible.

Ask the IRS for more time to pay.

The IRS will often grant you a short extension period (usually between 60-120 days) to pay your taxes. Interest and penalty will accrue on the amount due.

Call the IRS at 800-829-1040 or use the IRS Online Payment Agreement application at www.irs.gov

Request a time extension to pay by filing Form 9465, Installment Agreement Request.

You can attach Form 9465 to your tax return or file on its own. Do not file Form 9465 if you can in fact pay your entire balance due within 120 days or if you have requested an Online Payment Agreement.

  • On Form 9465, specify the monthly due date and payment amount. If the IRS approves the request, you may have up to 72 months (6 years) to pay. Interest will accrue during this payment period, but penalties could be terminated.
  • If you plan to make payments by money order, check, credit card, or payroll deduction, the IRS fee to set this up is $105. If the payments will be made by direct debit however, the fee is $52. Certain low-income taxpayers may also be eligible for a lower fee.
  • If the amount you owe is between $25,000 and $50,000, you must agree to provide bank information and make payments by direct debit.
  • If you owe $10,000 or less, and the IRS agrees that you are not able to pay in full, your request will be automatically approved if all the following are true.
    1. You agree to obey the tax laws.
    2. You have no other IRS installment agreements in place.
    3. You agree to pay in full within three years.
    4. You have filed on time and paid your taxes for the previous five years.
  • If you do owe more than $50,000, attach Form 433-F, Collection Information Statement, to Form 9465 so you can determine the monthly amount to pay.

If you owe $50,000 or less, file Form 9465-FS, Installment Agreement Request.

Consider paying your tax debt down to $50,000 so that you may qualify for what’s called the “Fresh Start” provisions and process to set up an installment agreement.

  • Form 9465-FS is essentially the same as Form 9465, only with an additional page. If you find you owe more than $25,000, but less than $50,000, you will need to provide additional financial information on the second page of Form 9465-FS.
  • Although the purpose of Form 9465-FS is for taxpayers who owe $25,000–$50,000, it can be used by anyone to request an installment agreement with the IRS.
  • Current “Fresh Start” rules allow you 72 months (6 years) to pay back your taxes in full. You may make an initial payment with the Form 9465-FS.
  • You will also need to agree to direct debits on a specified date from your bank account every month. The $52 set-up fee for these direct debit agreements can also be added to your balance due.
  • If you find you owe more than $50,000, you must attach Form 433-F, Collection Information

Please let us know if you have additional questions about any step in this process. Here at Valentine CPA, we’re here to help make taxes easy. Reach out to us today for any tax questions or concerns!

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