Many people try to avoid a lot of things in their lives – oil change, washing clothes, mopping the floors – but one thing can’t be avoided, and this is an outstanding debt. Read more about tax with the IRS on this site here.
According to the Internal Revenue Service, in 2014 alone, over 10 million Americans have owed them taxes. The penalties have been estimated to be at the same rate according to the data released by the IRS. Some of the things that you can do to eliminate your debt obligations are the following:
1. File Taxes – Even if you Can’t Make a Payment
File even if there’s still a remaining balance after you crunch the numbers. Ignoring the taxes will only make them worse in the long run. You need to pay what needs to be paid or face the negative consequences. Not filing can lead you to have criminal charges, so file even if you don’t have money.
If there’s no filing done before the deadline, you may face monthly penalties of about 5% of the unpaid balance. This can go up to a maximum of 35% and make your debt worse than you can imagine.
Ask for extensions if you need more time. However, you should still pay as much as you can annually in April to avoid the penalties and interests that can accrue to unpaid debt.
2. Make Plans, Delay, or Settle
If you aren’t able to pay in full within the grace period of about 120 days, then there are options where you may qualify. Some of them are the following:
Requests of Payment Plans
Long-term plans or installment agreements should be honored. You can get help with paying taxes from experts who can guide you on applying payment plans. Note that this is only an available option for those who have less than $50,000 in debt.
It’s possible to have a temporary delay when it comes to payment. This can be the case for people who can prove that paying today could cause them to lose payments for their food, shelter, and other basic necessities. Know that this does not discount your debt, and eventually, you will find the taxman knocking on your front door. This can cause penalties and interests, but it may give you some form of leeway to help you plan for the future.
There’s the “offer in compromise” that can be available for eligible applicants. The IRS will let you pay for less than what you owe, provided that you prove that you are under financial hardship. This is a form of relief that can help you manage your finances and help you avoid getting criminal charges.
3. Tax Experts Can Help
Know that the process can be tricky, and you may need financial experts to guide you in the process. You can talk to an accountant, financial expert, or lawyer. These coaches are people who can find out the opportunities available to you, and they can give you better terms according to your cash flows. Sometimes, it helps if you can lay everything out to someone you trust and see how it will impact your financial situation.
Use the Snowball Method if Possible
Since the amount is unavoidable, you need to make sure that you’re making progress towards paying your debts every month with the snowball method. Read more about the snowball method here: https://www.nerdwallet.com/article/finance/what-is-a-debt-snowball. If you’re doing the minimum, they will take a long time before they can be paid off, and they may accrue lots of interest and charges each month.
Many find it helpful to use the snowball method. This can allow you to make progress regarding your debts, not only in taxes but in other financial situations. You can get out of your hardships by paying one small debt that you can afford each month. Make minimum deposits to others who are too big.
Once you have paid off one or five smaller ones, the money should go toward the next bigger one until you’ve paid off your balance with the IRS. This way, you can save money by not accruing interest, penalties, and fees. With the help of the right people and talking to the taxman, you can get out of your financial difficulties in the soonest time possible and make positive changes towards your future.