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It’s a moment that should be accompanied by the theme music from Jaws: the moment you realize that you owe the IRS money. Whether it’s a small amount or several thousand dollars, just knowing that you owe Uncle Sam is frightening. But when you know there’s no way you can pay by April 15th, it gets even scarier.
If you owe the IRS and know there’s no way you can pay, don’t go on the lam just yet. Instead of leaving town, you should:
Try not to panic.
It’s hard not to panic when you have a tax bill you can’t pay, but acting rashly will only make the situation worse. Take a deep breath.
Get a second opinion.
If at all possible, have a different tax preparer look over your return to rule out any mistakes that would have resulted in your owing taxes, especially if you’re preparing your own taxes for the first time, or if you’ve never owed before and have not experienced any significant changes in income or other circumstances that can affect your taxes owed. Mistakes happen, but don’t look for the IRS to find them in the event that you are owed money, rather than the opposite. You may need to file an extension, but don’t assume that the IRS will wait – be prepared to make a payment toward your amount owed when filing an extension.
Make payment arrangements.
The IRS knows that paying large tax bills in full is impossible for many filers, and offers several payment plans that can help you to make payments on your tax debt over a period of time. Those who owe less than $25, 000 can even set up a payment arrangement online at the IRS website. Arrangements can also be made over the phone or through the mail. There are fees for setting up payment arrangements, but you’ll save money by allowing the IRS to deduct the money directly from a checking or savings account, and low-income filers may qualify for a reduced fee.
Don’t miss a payment.
If there’s one organization whose good graces you do not want to fall from, it’s the IRS. If you make a payment arrangement with the IRS, make sure it’s one you can live with, because missed payments will result in large penalties, and, eventually, astronomical interest. And if your debt gets large enough, the IRS can file liens against your property, or even garnish your wages.
No one wants to owe money, but owing money to the IRS has a scary reputation for a good reason. If you owe taxes and can’t pay, don’t panic, but don’t put ignore the debt, either. Doing so can put your property or income at risk.