Ever so often it happens, you owe a whole lot more in taxes than you thought you would. Or, maybe if you’ve got a business that has been growing fast, all of your cash went into inventory, which isn’t immediately deductible. So, you’re cash poor, but taxable income rich.
This is a question I hear every now and then, especially now since we’re so close to the final tax deadline for individual income tax returns, October 15th.
#1: File your tax return anyway. If you don’t pay your taxes, you will get a penalty and interest. If you don’t file your tax return, your penalty will be much worse and maybe even include jail time.
If you have credit cards, you can use them now to pay your taxes. There will be a fee involved.
#2: File your return and wait for the IRS to get back to you.
It will take 1-2 months for the IRS to ask for the payment. That might be enough time for you to get your funds together. Or, if it’s not, they usually allow you to avoid a formal process if the amount due is low enough and you pay it all within 6 months.
#3: Apply for an installment agreement. There are some fees: $120 for the installment agreement and $52 to set up a Direct Debit. There are penalties and interest.
#4: You may qualify for an Offer in Compromise (OIC) if you meet the definition of ‘financially distressed.’ They will look at your current income, your projected future, the allowable living expense for your circumstances and some additional costs like higher education.
The bottomline is to not panic. Talk to an experienced tax pro. If your returns are late, get caught up as soon as possible. You’re much better filing them voluntarily instead of waiting for the IRS to catch you.