Tax trouble is a common phenomenon that occurs in the lives of millions of Americans. While we can dream that taxes would disappear, or that they wouldn’t exist at all, the reality is that we owe a responsibility to our country… and it has a price tag. Hard times befall the best of us and they usually have a lot to do with debt. From student loans, mortgages, credit cards and the likes of, to just about anything that can rack up money owed, debt can become a major problem in our lives.
Unfortunately, while trying to manage all of our other payments we lose sight of what we’re going to owe the IRS when winter fades to spring and the tax season blooms. Don’t panic! Here’s what you can do when you can’t pay those hefty taxes.
You’ll Still Need to File
That age old adage ‘there’s a time for everything’ rings true once again as the time to file, if you haven’t already, is withinthe IRS deadline. No matter what your situation is, even if you’re looking at the return you’re prepping and thinking ‘I’m not going to be able to pay this,’ you still have to file. Failure to do so will only accrue more consequences—which take the form of penalties, fees, and interest. Not filing is a lot worse than filing and not paying.
Generate More Income
If it’s within your means, there are plenty of DIY side hustles that can generate income. Obviously, if you can’t pay your taxes, it’s due to a lack of capital. That’s why, if you have the time and knowhow, try to find side jobs to generate supplemental income. This could go hand-in-hand with an IRS settlement plan, as you could push off your debts to a later date, in which you’ll have saved the money to pay them. Driving for Lyft or writing freelance articles are great side gigs that could help you generate some extra cash.
Pay as Much as you Can
You might be reading this tip and thinking, are you serious? I’m here because I can’t pay. But can you not pay a single dollar of what’s owed? If you have any capital that you can put towards your taxes, then it’s better you do so. The more you can knock off, the fewer fees and interest payments will be when the time comes. You really want to take preventive measures so you can stop IRS garnishment. Paying what you can is always encouraged—even if this does not cover a substantial amount of the taxes owed.
Use a calculator to compare what it would cost you to take out a loan, then the interest and fees that would accrue if you were to not pay your taxes. Put these two side by side, as they’ll clearly indicate which is the better option. Of course, being beneath the IRS’s gun is typically worse than dealing with a bank—yet there are times where taking out a loan with a reasonable interest makes more sense.
Prepare for the Consequences
If you know you are not going to be able to pay your taxes, then it’s paramount you prepare for the consequences. Just like preparing your car for the winter months, there are steps you can take to at least mitigate the fires coming your way. Try to create a small savings account, or to evaluate what assets you can leverage if things are to sour. Declaring bankruptcy, dependent on the circumstances, can also become a vital tool in handling the situation.
It’s important to note that despite your preparation, what you can’t do is hide. At the very least, you are going to want to correspond with the IRS and detail your situation. Communication is key—even if it’s only to inform them that you’re in no position to pay.
While this can be a catch 22—given that you can’t pay your taxes at hand—sometimes utilizing the money you do have and putting it towards a tax professional is the only way to intelligently rectify the situation. At the very least, they can advise you on the decisions you must make, especially if they’re hard ones.