What Happens if You Can't Afford to Pay the Taxes You Owe?News
Posted in on March 30, 2018
April 17, 2018 is the tax deadline for filing for your 2017 taxes. While many taxpayers are excited about getting a refund on tax day, not everyone gets money back from the government. While you are supposed to pay your taxes as you earn income, there are some circumstances where you may end up falling short of this goal, especially if you underestimate what you're supposed to be paying.
The problem is, if you don't have the money due to the IRS by April 17, you could face serious consequences that could affect your finances. It's important to understand what happens if you pay your taxes late, as well as what alternatives you could consider if the tax bill has come due and you do not have the cash to pay it.
What If You Can't Pay Your Taxes?
If you can't pay your taxes, first and foremost you will still want to make sure that you file a tax return on time by April 17 or that you request an extension to file by October. The penalty for failing to file your tax forms is significantly higher than the penalty for nonpayment.
In fact, the penalty could be 10 times higher if you don't file taxes on time, jumping up from a .5 percent penalty for late filing to a 5 percent penalty for not being able to pay the taxes that are due. Penalties are capped at 25% of unpaid taxes, although more stringent penalties are applied if you're more than 60 days late with filing your tax return.
If you file your taxes on time, but cannot pay, you will just be subject to interest and to the late paying penalty. However, you have the option to try to enter into repayment plans with the IRS that could keep your penalties for late payment to a minimum.
One option is a short-term plan that lasts for 120 days or less. You do not have to pay fees to set up a short-term repayment plan, but you'll still owe the interest on the unpaid taxes as well as a penalty fee.
If 120 days does not provide you with enough time to get the money together to pay your taxes, you can enter into an installment agreement. There is a cost associated with setting up this type of plan and fees vary depending whether you set up automatic payments or not. There are minimum payment requirements for installment agreements based on how much you owe, and you are eligible only if you have filed all of the tax returns that you owe to the IRS.
You may also wish to explore the option of taking a personal loan or using a credit card to pay taxes that you owe but can't pay – the interest may be less than what you have to pay to the IRS in fees or for setting up an installment plan.
Maryland tax attorney Kevin Thorn can help you to determine what your best course of action is for avoiding penalties and potential audits, so contact his office for help today.Share This Post