What To Do If You Can't Afford Your Taxes

Business Insider

If you are among the  four in 10 Americans  who have no idea how they'll afford their tax bill this year, here are a few words of advice: Act now, not later.
The IRS isn't some credit card company you can simply call up to negotiate your way out of fees. They will gladly slap you with late penalties, file tax liens against you, and send collectors after you while you twiddle your thumbs.

That being said, there are some simple steps taxpayers can take that will put them in the best position possible to wipe their slate clean and escape further consequences. 

Don't stick your head in the sand. Like credit card bills, the longer you ignore the unpaid taxes, the worse it will be for your finances. The IRS will levy interest on past due balances in a heartbeat. "This could have negative ramifications on your finances by further impeding your ability to pay your tax bill and causing any tax lien reported in your credit file to stay there even longer," says Adrian Nazari of Creditsesame.com.

Pay whatever you can upfront. There's no need to throw your entire savings account at your tax bill if you can't afford it. Most tax software will allow you to pay a portion of your bill rather than the whole enchilada. This way, you'll skirt around any late fees and buy yourself some time. 

Work out a payment plan.  This is the most sensible option, especially if you know you'll be in for the long haul. The IRS calls it a "installment payment agreement" and offers a few ways to sign up: either fill out the  Online Payment Agreement application,  or submit a  Form 9465-FS, Installment Agreement Request  along with your return .  Unless you can pay within 120 days, be ready to pay a fee upfront: It's $52 for a debit agreement, $105 to deduct payments from your salary or $43 for low-income taxpayers.

Ask for an extension. You've got until April 17 to submit a form 1127-A, Application for Extension of Time for Payment.

Pay by plastic. If you're at your rope's end, paying tax bills with credit is an option to consider. Just be ready to pay for the privilege. You must submit payment by credit card using a list of approved tax payment vendors. Fees for using a credit card range from 2 to 4 percent of your bill––not to mention the interest you'll accrue on the card balance itself. If you've got a card with a promotional 0% APR, you won't have to worry about interest for some time.

Make sure your credit report is clean. If you've waited long enough to pay your tax bill that the IRS has issued a lien against you, chances are it has turned up on your credit report. And even after you've paid off your bill in the future, that lien may not be automatically removed from your credit. 

"It’s important to save all official tax lien documentation, and especially the release, for this reason," Nazari says. "Send copies of the lien release to the three credit bureaus and request that they update your tax lien record. Tax liens can appear on credit reports indefinitely until the lien is paid.  Even after payment, the lien can impact your credit report for an additional seven years, though released liens will impact your credit less than unpaid liens."

Dispute any liens that aren't legit. If you see a tax lien on your credit report that you don’t recognize, don’t assume that it’s correct, Nazari adds. Tax liens are unfortunately filed under the wrong name often enough to warrant a second look. If you're sure it's an error, it's time for the usual drill: Dispute the lien on your report at all three credit bureaus.



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