Late Paying Your Taxes? 5 Tips to Help You Avoid Penalties

Taxes are inevitable.  If you cannot afford to pay your taxes, there are two things to keep in mind:

•     It’s better to pay something rather than nothing.

•     Not filing is much worse than owing.

One way to look at it is like this: it is not a crime to owe the IRS money, but it is a crime to not tell them that you owe them money.  This should let you know about the wisdom of not filing.  Here are 5 ways to handle this situation.

Tip 1: Send in the Return

Even if you cannot pay a dime, send in your return for the year.  This means that you’re coming clean about the fact that you are in over your head.  You can also apply for an extension, if you believe that you can work up the money in short order.

Tip 2: Payment Plans

Even though most people think that taxes are collected by people who will do anything and everything to get your money, the IRS can be reasonable.  They’ll be willing to set up a payment plan with you, in most cases.  This can be expensive, however.  You have to call them and talk to them about the situation.

Tip 3: OIC

OIC means Offer in Compromise.  This is when you offer to pay a smaller amount than the total of the taxes you owe.  It almost never works but, in some cases, the IRS may be willing to settle for a bit less than you owe them.

Tip 4: Uncollectable

If you’re in dire financial straits, the IRS will sometimes declare you uncollectable.  This means that they won’t try to collect the debt, but that you’ll still owe them and that all of the penalties and interest you’d normally owe will build up.  For some people, this is the best option available, though it may involve liens on property.

Tip 5: Take Out a Loan

The interest you’d pay on an installment loan will generally be far less than what you’d pay the IRS in interest and fees.  Even compared to a credit card, the IRS is more expensive.  Consider taking out a credit card or a loan to transfer the debt and pay it off to them rather than to the tax agency.  This is a good way to keep your fees down.

Tip 6: Don’t Panic

There are some services that may be able to help you with back taxes.  You’ll have to determine how much you owe and how complex settling with the IRS will be to see if they’re worth it.  Some of these services really do nothing more than file your taxes for you and request the same services you could request directly from the IRS.

If you have unfiled taxes or other problems that may result in big bills, levies or garnishments, however, it may be worth it to consider contacting professional assistance in the form of a tax preparation company or accountant, to see if they can help you get out of a bad situation or, at least, to make it a livable situation for you.