Tax debt is so difficult because you know that you can’t afford to pay your taxes, but you still owe money. In many cases, it seems easier to avoid the issue altogether. If you can’t pay your tax bill, it seems pointless to address the issue.
However, the reality is that avoiding your tax debt can be worse than facing it. This is because the IRS charges penalties and interest on unpaid taxes. If you are afraid to file your tax return because you know you can’t pay, things are even worse, since the failure to file penalty can be quite hefty.
Instead of avoiding the issue, it makes sense to take a step back and see if you can address the issue head on and fix it.
IRS Payment Plan
First of all, understand that the IRS offers a payment plan. As long as you owe $25,000 or less in taxes and penalties, you can apply for an installment plan online. This streamlines the process quite a bit. You will still be charged interest, but it’s usually manageable. You might also have to pay origination fees, since the amount is considered a loan.
You can specify how much you think you can put toward your tax bill each month, and this can be a good way to make it manageable to pay your tax debt. However, you will have to keep up with your taxes going forward if you don’t want problems to add up again in the future.
If you owe state taxes, check with your state taxing authority. Chances are that your state also has a payment plan that you can make use of.
Get Help from a Professional
You can also get help from a professional who understands the IRS and the tax system. There are a number of professionals out there who can help you with your tax debt. These professionals understand the settlement process, and can help you figure out whether or not it makes sense to offer to settle your back taxes for less than you owe.
While settlement isn’t always an option, a tax debt specialist can help you review the options and figure out what might be possible. The reality is that tax debt — especially as penalties and interest add to your original deficit — can be overwhelming. Sometimes just having someone on your side to represent you to the IRS and help you put together a plan can get you back on the right track.
Planning for Future Taxes
The hard part is staying on track once you get your tax debt figured out. You need to make sure that you are planning for future taxes. Check your withholding at work to make sure that it is accurate and reflects your situation. You can also set money aside in a high-yield savings account in an effort to build up a fund that you can draw on when you fall short.
Staying ahead of the game means that you need to pay attention going forward, and that you need to take small steps each month to ensure that you have enough money to pay the taxes you owe come April 15.