Five Steps to Take if You Can't Afford Your Taxes
Tax season has a way of sneaking up on us. The months leading up to it keep us preoccupied with seasonal schedule shifts and holiday celebrations until the new year inevitably rolls around. Filing taxes is stressful enough, but owing more money than you can afford makes it worse.
This is one surprise that no one wants. Sometimes we end up owing money because we didn’t have our employers withhold enough from our paychecks. Other times, we may owe money after we inadvertently underpay or miss payments on estimated self-employment taxes.
Changes in tax codes, income levels, and deductions are a few other reasons why we might end up owing money after filing our taxes. So, what to do if I can’t afford taxes? While it’s a situation none of us wants to be in, certain solutions can help ease the burden.
Determine Your Eligibility for IRS One-Time Forgiveness
The best step to take first is to go straight to the source. The IRS’s penalty relief program offers forgiveness the first time you fail to file a tax return, pay on time, and/or deposit taxes when due. The program also makes certain exceptions for those who have suffered due to a natural disaster, fire, untimely death, and other extenuating circumstances.
You can call the IRS at the toll-free number on your owed taxes notice to determine your eligibility for penalty forgiveness. While this won’t eliminate the balance you owe, it may help keep fees, penalties, and interest from making it harder to pay.
Ask for a Short-Term Extension
If you’re prepared to pay your tax balance in full within four months, the IRS provides a short-term extension option that gives you up to 120 days. There is no fee to apply for or request the extension, but there will be a monthly penalty on the balance.
The monthly penalty totals 0.5% of the balance. And while this option eliminates the application fee you’d face under a payment plan, there will still be the monthly penalty and interest charged at the short-term federal rate, which tends to change each quarter, plus 3%.
You can apply for a short-term tax extension online or call the IRS at (800) 829-1040 to request one. You can also print the application and send it through the mail. Whichever option you choose, be sure to request your extension by April 18, 2022 for the 2021 tax season and pay attention to IRS deadlines for future years.
Sign Up for a Payment Plan
Another option the IRS provides for those who can’t afford to pay their tax balance in full is a payment plan or installment agreement. These plans may be short-term or long-term, depending on the amount owed, your income, and other considerations.
You will be charged an application fee and will accrue interest throughout the duration, but these will be significantly less than they would be if you simply neglected to pay anything toward your balance due. A payment plan may give you the time you need to get caught up.
Make Use of Your Available Credit
While it may not be the most ideal option out there, credit cards can be particularly useful tools in a pinch. If your tax bill is a manageable amount, you can charge your card or take advantage of your cash advance line to pay the IRS before the balance becomes overdue.
Consider a Spotloan
Credit cards aren’t the only way to get the money you need quickly. If your credit cards are currently maxed out, your options with the IRS don’t meet your needs, or you simply prefer the convenience of a short-term emergency loan, we can help.
Unlike payday loans, Spotloans are short-term installment loans that give you the time you need. Rather than only having a week or two to pay your balance or incur a hefty fee to roll it over, you can pay your loan off for up to 10 months.
After you’ve caught up, keeping track of everything you need to know about tax season, including adjusted deductions and credits, can help you avoid owing money again in the future. Staying up-to-date on relevant changes is one of our top tax tips.
*A note from Spotloan: We hope this article has provided some helpful information regarding this year’s tax season. However, as with any important tax-related decision, we suggest that you reach out to a qualified tax professional with any questions you may have.
