What To Do When You Can’t Pay Your Taxes

What To Do When You Can’t Pay Your Taxes

YW0312Taxes can be a scary thing, particularly if you’re struggling to pay them or have fallen a few years behind. The threat of the IRS coming knocking on your door is a strong one—so strong, we hope, that most people are paying their taxes. When done right, as Jason Hartman knows, taxes aren’t scary or even extreme. But if you’re short on money and stressed out, we’ve got some advice that should help you sleep at night.

First, make sure you’re filing taxes, even if you’re having a hard time paying them. Late payment penalties are much higher than late filing penalties, so save yourself some money. Not filing at all will certainly cost you some money. Plus, filing will also give you a better idea of what you owe, and knowledge is power!

Next, contact the IRS. Establishing open lines of communication will make you appear more responsible and the IRS will normally be more generous. You aren’t going to go to jail if you’re open and honest with the IRS, so be a good communicator. Then, contact a tax specialist for professional help. Back taxes can be a scary thing to deal with, and someone who knows what they are doing will be invaluable in minimizing interest and saving you money.

Once you’ve established contact with the IRS, you’ll be asked to work out a payment plan. Often, this can be done over the phone. When submitting a payment plan request, you’ll have an increased chance of approval if you tell the IRS that you’ll pay off the debt within five years (two is better). You should also be prepared to do some figuring—your payment will likely be your income minus your living expenses, with the leftover being paid to the IRS. If necessary, lines of credit (like credit cards or reverse mortgages) can be used to pay off the IRS—but be careful.

Once you’re making payments, make a point to send them on time. Violating the terms of your payment agreement will ensure the IRS takes bigger measures to get its money. They might seize property, bank accounts, or your home mortgage. Again, communication is key. If you can’t make a timely payment, work something out.

There are a lot of scams out there, so beware opportunists looking to make a quick buck. Companies that claim to settle your IRS debts cheaper aren’t always scams, but they may not be able to deliver on their promises. Do some research before handing your information over to anyone and always exercise caution. (photo credit: numberstumper via photopin cc)

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The Young Wealth Team