What to Do When You Can’t Pay Your Taxes

What to Do When You Can’t Pay Your Taxes

If you have an upcoming tax payment that you can’t pay, or have delinquent tax debt that is continuing to accrue, you may be tempted to delay filing your taxes. You may also want to avoid responding to any IRS notices you receive because you can’t pay off the tax debt listed on the notice. The desire to hide from your tax problems is understandable, but it is actually the worst thing you can do when you are unable to pay your tax liability.

Instead, you should file your taxes on time, respond to all IRS communications, and consider talking to a tax attorney about your options. Taking this proactive approach has several benefits, including the possibility of substantially reducing the amount of penalties and interest you owe and preventing any IRS collection actions.

Do Not Put Off Filing Your Taxes

If you know you cannot pay the tax due on your return, file the return anyway. There are several reasons for doing this:

  • the failure to file penalty is much bigger than the failure to pay penalty, so you will avoid the larger penalty by simply filing your return
  • the failure to file tax returns is one of the badges of tax fraud, and could cause the IRS to look into more serious violations of tax laws, including criminal tax violations
  • there are several options available to you if you are experiencing a financial hardship, such as an Offer in Compromise or an installment agreement

If you already owe the IRS and have received notices, do not ignore them. You may lose out on your right to appeal the decision or action being taken if you wait too long to respond. This could have serious repercussions if any of the following happens:

  • You have a legitimate dispute regarding the amount of tax you owe, but you fail to appeal the action or petition the Tax Court by the deadline. This means that you will not be able to have the decision reviewed by the courts without first paying all of the disputed tax.
  • The IRS levies your bank account or garnishes your wages. You may be able to avoid these actions before they take place if you appeal them or negotiate with the IRS in good faith, but if you don’t respond in time, you may lose all the money in your bank account or a large portion of your disposal income from each paycheck.

If you can’t pay your taxes, you have to negotiate with the IRS on their terms. That means submitting an Offer in Compromise, negotiating an installment agreement, requesting penalty abatement, or placing your account in currently not collectible status. Taxpayers who take matters in their own hands by trying to hide from the IRS or avoiding their tax obligations will end up suffering even more in the long run, so take a proactive approach and talk to a tax attorney about the proper course of action for resolving your tax problems.

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