Help! I Can't Pay My Taxes!

5 Steps to Take if You Cannot Pay the Taxes You Owe

Owing money to the IRS can be stressful and even scary. For a lot of people, the natural reaction is to freeze like a deer in headlights. Maybe if you don’t move, they won’t notice you.

The truth is, there are important steps you should take, even if you’re not in a position to pay the taxes you owe. Strike that...especially if you’re not in a position to pay. Failing to take these steps will only cause your tax debt to grow, making it even more difficult to pay it off.

Take these 5 steps to get yourself back on track:

Become Compliant

If you have back-taxes due, there are two types of compliance you may need to worry about: payment compliance and filing compliance. In the event that you can’t pay your back-taxes right now, you can still take steps to become compliant and stay in the good graces of the IRS, which could save you some penalties. Requesting a transcript from the IRS is a good place to start if you’re not sure exactly what has been filed and what is still outstanding.

File Missing Returns

Filing compliance is the next step. Even if you have no money to pay the tax, you can still ensure that all returns are filed and up to date. In order to be filing compliant, you must have filed your return for the current year as well as the previous six years. If you have failed to file during that time, you’ll be ineligible to set up a payment arrangement with the IRS, so get current on your filings first.

Make Current Tax Payments

Next, you need to ensure that your current tax payments are made. Even if you have back-taxes due, you need to make the estimated payment on the current year. This allows you to be in payment compliance, which makes it possible to set up a payment plan for any tax due from previous years.

Contact the IRS

Open communication with the IRS makes it possible to work out the best possible arrangement, but that doesn’t mean you need to communicate with them personally. Working through a tax professional gives you a major advantage, because you don’t have to worry about making statements or accepting agreements that are less favorable than they could be.

Negotiate a Resolution

Working with a tax professional gives you the best chance of negotiating a resolution with the IRS. There are several programs available which can reduce your taxes or defer payment.

Installment Agreement

Installment agreements are just what they sound like. You make an agreement with the IRS to pay your tax debt over time, following a payment plan. You will continue to pay interest on your tax debt during the installment agreement.

Offer in Compromise

An offer in compromise is essentially an agreement from the IRS to accept a smaller amount and settle your tax debt. This amount can be paid in one lump sum or a periodic payment plan can be established.

Currently not Collectible

If your current financial situation makes it impossible for you to pay your debt and maintain adequate living expenses, you may qualify for a CNC status. If so, the IRS will not attempt to collect the debt at this time but you will still incur interest and penalties which will need to be paid later.

Don’t deal with the IRS alone.