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One of the difficulties that many face right now is the fact that they may not be prepared to pay their taxes. Indeed, this recession has resulted in concerns by some who have been receiving unemployment benefits (only the first $2,400 you receive are tax free), and those who have received a measure of debt forgiveness, which is considered income for tax purposes. There are any number of additional reasons why you might not be able to pay your taxes.
If you can’t pay your taxes, it is important to address the problem, rather than hiding from it. You might be tempted to just not file. This could only make matters worse, though. Failure to file a tax return comes with a rather stiff fine. Additionally, filing for an extension won’t help you, either. This is because you still have to make your tax payment when you file an extension. Your best bet, when you can’t pay your taxes, is to get an installment loan from the IRS.
IRS Installment Loans
It seems strange that the IRS would offer these loans, but it does. If you can’t pay your taxes, and you owe less than $25,000, you can usually arrange an installment plan to pay your taxes. You will have to pay a one-time fee for the account, and you will be charged interest. However, the fee is usually not onerous (you get a discount if you set up for direct debit from your bank account), and the interest is comparable to a bank loan — much lower than using a credit card or getting a pay day loan.
There are a number of options you can choose from when you set up an installment payment with the IRS:
- Online payment
- Payment through the Electronic Federal Tax Payment System.
- Credit card.
- Payroll deduction via your employer.
- Check or money order.
- Direct debit.
The direct debit option might be the best, since it sets up automatic payments that you do not have to worry about. Additionally, it is helpful since it reduces your fee for getting the loan in the first place.
If you want to have an assessment for an IRS installment plan, you can submit Form 9465. A written request attached to your tax return or tax bill can also be used. The important thing is to contact the IRS and see what your options are, rather than ignoring the problem and hoping it will go away.
You can pay off your plan earlier if your situation changes. Additionally, if it appears you will not be able to keep up with your payments, you can restructure your payment plan. This restructuring does require another fee, but it is better to restructure than to watch the missed payment fees and other penalties add up. If you are showing a true willingness to pay your tax obligation, and if you can demonstrate that you really are having a hard time, the IRS is usually willing to help you.
It is a good idea to consult a tax professional if you have questions about the procedure, or if you need help with the paperwork.