Look. It happens. There are times when you don’t have as many deductions as you expected or your tax bracket changes due to a raise. You may also be self-employed and had no idea you would owe as many taxes as you do. Before you panic, there are things you can do if you can’t pay your tax bill.
File Your Taxes Regardless
First things first. Not being able to pay your taxes is not illegal. Failing to file your taxes is. Regardless if you can pay or not, you must file your taxes. File your taxes as normal, if you have major changes for the year, use an accountant.
Request an Extension
If you don’t have a large tax bill, consider requesting an extension. You can use Form 1127 to get an extension to pay the amount owed. You will need to provide lists of assets and liabilities to prove an undue hardship that is preventing you from paying.
Do note. There is a difference between filing Form 1127 and requesting an extension to file. If you get an extension to file, you are still expected to pay the amount due by April 15.
Determine What You Can Afford
You need to determine what you can afford to pay each month. Remember, if you’re self-employed, you will still need to take care of any estimated taxes for the year. In other words, choose an amount you can truly afford.
Setup a Payment Plan
You can get an installment plan through the IRS that allows you to make payments on the amount owed. You can use the Online Payment Agreement tool to apply. You will be charged fees and penalties. You may also need to pay a setup fee. If you are low income these fees can be waved.
A payment plan will protect you against liens and garnishments. You must make payments on time to avoid default as well as pay any taxes due when they are due.
Plan for the Future
If you are self-employed, you need to start making estimated payments on your taxes. If you are employed by someone else, make sure you are having enough money deducted from your paycheck so that you don’t have taxes due at the end of the year.
Don’t panic if you owe taxes and can’t pay them. There are things you can do. Whether you get an extension to pay or setup a payment plan, you can move forward. The most important thing is to make sure you file your taxes on time.