While many of us are hoping to have a payday when our tax refunds arrive, if you owe taxes, you may find that April 18 is the wrong kind of “pay day.” This year marks the third COVID-era tax season, and millions of dollars in past refunds and pandemic relief credits have yet to reach the taxpayers. If you’re struggling to pay your taxes this year, here’s what you need to know.
File your return or extension by the due date.
To avoid any penalties for late filing, the first thing you should do is file your personal return by April 18, or to request an extension of time to file. This is only an extension of time to file, not to pay your balance due. Talk to your tax advisor to get your return or extension filed on time.
Pay what you can.
Even if you can’t pay the full amount at once, go ahead and pay what you can to reduce your overall balance. A lower balance may mean you owe less in interest and late payment fees later.
Determine if you qualify for an installment payment plan.
Talk to your tax preparer about applying for a payment plan. To manage your payment plan online, you’ll need to set up an account on the IRS website—you can follow our guide to get started. There are various kinds of payment plans, including short-term (180 days or less) and long-term, and they each have different fees and interest. Talk with your financial advisor about which option will be best for you.
As a last resort, talk to your tax advisor about an offer in compromise.
If you find that you aren’t able to pay your taxes, even with an installment plan, you may be eligible for an “offer in compromise,” which allows you to settle your debt for less than what you owe. The IRS considers factors that affect your ability to pay, like your income, expenses, and asset equity to determine eligibility. This program is not for everyone, so be sure to talk to a qualified tax professional about your options.
We understand that owing the IRS money can be stressful, but don’t panic! A qualified tax professional can assist you in finding the best ways to manage your debt. Padgett has a nationwide network of CPAs and EAs who are ready to help, so you don’t have to worry. Find an office near you today!
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