Visit Us

Cash Flow, Finance & Accounting, Taxes

Can’t Afford to Pay Your Taxes? Rest Easy – Here Are Your Next Steps

Can’t Afford to Pay Your Taxes?

Tax time is often fraught with anxiety, from collecting the necessary documents needed to file your returns to finding out whether you’ll owe money at the end of the year. For business owners, receiving a big tax bill can be a shock. And when you’re struggling with cash flow issues or trying to find the funds needed to grow, you can find yourself in a state of panic. Whether you’ve underestimated your payments for the year or experienced growth that puts you in another tax bracket, it’s important to have a plan in place to repay what you owe. When a one-time payment isn’t possible, the good news is that there are a number of options available for business owners. If you can’t afford to pay your taxes, here’s a closer look at the next steps you should consider.

Contact the Taxpayer Advocacy Service

The Taxpayer Advocacy Service serves as the taxpayer’s voice to the IRS. It’s an independent organization that helps advocate for taxpayers in many different situations. It’s a resource that’s available to help you navigate your options when challenging situations arise. They specialize in helping both individuals and businesses.

The Advocacy Service offers a website with detailed information and easy to understand interpretations of tax regulations and options. They also maintain local offices in every state (as well as Puerto Rico and Washington D.C) and can set up in-person appointments where necessary. It’s typically useful to review the information on their website and then contact them if you have additional questions or need help resolving a more complex situation.

Additional Time to Pay

If you just need a little extra time to pay your bill in full, requesting a brief extension may be the way to go. The IRS allows you to request a short amount of additional time to pay tax debt in full via the Online Payment Agreement Application. If you apply and are granted this extension, you have an additional 120 days to pay off your bill. There’s no fee for this extension, and you will generally pay less in penalties and interest than if you paid through an installment agreement (discussed below) over a longer period of time.

Installment Agreements

If you learn that you owe more in taxes than you can pay today, the IRS offers installment agreements that allow you to pay back your debt over time. When 120 days won’t give you the cash flow needed to settle your debt, consider applying for an installment agreement. An installment agreement is a formal agreement with the IRS, and establishes a set monthly payment toward your debt.

Installment agreements are generally available only when you’ve filed all your returns, and when your balance for all taxes, fees and interest is below $50,000 for individuals and $25,000 for businesses. Applicants with debt within those ranges can apply online, and must pay the liability within 72 months. They also must agree to either direct debit or payroll deduction. If you have a larger tax debt you may still qualify for an installment agreement, but may be asked for information about your expenses and income before it’s approved. The Taxpayer Advocacy Service maintains a useful reference guide to navigate all the nuances of installment agreements.

Offer in Compromise

An Offer in Compromise (OIC) is when the IRS agrees to accept less for your taxes than what you owe. Understandably, the IRS has strict standards about when they’ll accept an OIC:

  • Doubt to collectability: The IRS doesn’t believe you have enough income or assets to pay the debt in full.
  • Hardship: You could pay the debt, but doing so would create economic hardship or be unfair in some way.

There are two types of Offer in Compromise agreements. A Lump Sum agreement requires you to pay a fee of $186 to apply, 20 percent of the proposed offer at the time you submit the application and the ability to pay the remainder in five payments within five months of the offer being accepted. A Periodic Payment Offer extends the repayment period to 24 months.

Once you’ve determined that you have a tax liability beyond what you’re able to pay, it’s important to take action. File your returns on time, as the penalties for non-filing are higher than the penalties and interest for non-payment. By taking action to repay the debt, you’re in a stronger and more positive position to negotiate with the IRS than when they’ve begun collection enforcement against you.

Have you ever dealt with a tax bill that was larger than you were unable to pay? What steps, resources or support did you find most useful? Share your story in the comments below or join the conversation on one of our social med

email

Kabbage Team

The Kabbage Team is here to not only fund the small business loans you need, but to help you grow your business through free marketing tips, webinars, tools and more. Is there something you'd like us to cover or want to get your small business featured on our blog? Send us a note at content@kabbage.com.

Latest posts by Kabbage Team (see all)