For many, tax season is a time of big spending as refunds come rolling in. If you owe money to the IRS, though, there will be no big spending. What if you have a tax liability that you can’t pay? This is surprisingly common, and the IRS is almost always willing to work with people who have tax debt, particularly if they are honest and make a diligent effort to quickly repay the debt. Here’s what you can do if you’re concerned about a tax liability.
Make Sure You Owe It
Filling out your taxes can be stressful, particularly if you don’t maintain great records. Before moving forward, ensure you actually owe the full amount the IRS is claiming you owe. Ask an accountant to review your tax returns with an eye toward unclaimed deductions and credits. If you’re self-employed or a small business owner, filing as a corporation might reduce your liability, so consider a tax amendment if your accountant recommends doing so.
Pay it all Now
The best option—even if it’s hard, even if it makes you feel terrible—is to pay the full amount now if you can find a way to afford doing so. Owing money to the IRS is not a good thing, and the stress can keep you up at night. If you can’t pay it all now, pay as much as you can. Even if that’s a small fraction of the total debt, the payment will reduce the amount you end up owing in interest.
Make a Deal With the IRS
The IRS offers two key options for taxpayers who owe money:
- An offer in compromise allows you to essentially settle your tax debt by making a reasonable offer and paying it all upfront.
- A payment plan allows you to pay the debt over time, much like you would do with a credit card.
Get a Loan
A personal loan or credit card can help you repay your debt, but be careful. You can end up paying thousands more in interest payments if you don’t quickly repay the loan. If the IRS is willing to give you a payment plan or offer in compromise, you’ll save money by not taking out a loan. But if you have access to a low-interest credit card, consider using this option and then repaying the debt as quickly as you can.
Do Nothing
You can, of course, do nothing if you owe a tax liability. Many taxpayers, overwhelmed by threatening letters and scared that they’ll never repay the money, opt to do exactly this. Ignoring the problem will only make it worse. The IRS will not go away, and refusing to do anything increases the odds that they will prosecute you, garnish your wages, or take other extraordinary measures.
Rather than ignoring your debt because it’s too stressful, delegate the task to someone else. An accountant or lawyer who can advocate on your behalf may be able to secure a fair repayment plan, but without all the waiting on hold and emotional stress that comes from doing it yourself. Hiring someone who can help you may be well worth the small sum you have to fork over.