3 Things You Shouldn’t Do When You Owe Taxes
Owing taxes to the IRS, whether its just a fraction of your monthly income or an upsetting amount, settling what you owe should be done right away. Its bad enough not to get a tax refund. Getting in trouble with IRS is the worst way to start the year.
However, owing federal tax shouldn’t be a cause of panic. A lot of Americans somehow, are facing a similar concern. The good thing is there are ways to positively handle this debt.
Avoid These 3 Major Mistakes
The one thing you should avoid doing when faced with a tax debt is taking actions that will make the situation more difficult for you. Based on the suggestions of experts on federal tax and tax payment plans, here is a list of things to avoid:
Paying Debt with Debt
A bank loan would seem to be a probable solution. Why not? You not only get the needed money to settle your tax, a payment plan for the loan can be arranged as well. But will the bank grant the loan?
Maybe you could try paying using a credit card. Right, that could be it. It makes sense, paying a debt with another debt, plus the staggering interest rates. Looking at it as a long term solution, you may end up paying so much more. It may be best to step aside for a moment and assess these options.
Take time to think about it. Compare the interest rates, fees and repayment terms so you’ll know exactly how much is being borrowed to pay your tax and how much will it cost your to pay all the accumulated debt.
Failing to File a Return and Extension
Even if you can’t afford to settle your debt in one go, filing for a tax return is still required. IRS will charge 5% failure-to-file penalty for every month you owe, and up to 25% maximum penalty. And don’t forget the interest that will be added until it’s fully paid off.
By filling an extension, you will be given an additional six months and if you can’t file it before the April deadline, there won’t be a failure-to-file penalty. But the existing debt will have a penalty capped at 25%.
No Payment Plan
Given that you can’t pay what you owe in full, IRS offers payment plans. Find out if you are qualified to apply. They do not want to run after tax payers who still has payables to settle. So before one of the IRS people decides to take extra time to focus on your debt, proactively work it out with them.
For a debt less than $50,000 (income taxes, penalties, and interest), as of 2015, an online payment plan is available. If you meet the requirements, take advantage of the online payment, otherwise, you’ll need to mail in your Form 9465 to the local IRS office and wait for a reply to find out what installment plan you can apply for.
Every eligible tax payer has 72 months to settle the full amount, however, interests and penalties will be added for as long as you owe them money. `
What Can You Do?
Despite being the ‘bad guy’ in this difficult time, IRS is a reasonable organization that offers assistance whenever possible. Enrolling for the online installment plan could offer great help for you to settle your debt. It may take time, but as long as you can send in partial payments, it isn’t such a bad deal.
You need to talk to the right people to get to the right direction. Check out this article from Taxpayer Advocate Services.
On the other hand, even if you qualify for a payment plan but you’re still unable settle the full amount, there is an alternative option awaiting for you to discover.
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