This year, I have a massive tax bill. Well, technically my ex has a massive tax bill, but because of the situation, we’re pretty much combining our tax bills and splitting it down the middle.
While we can technically handle the taxes, it’s not pretty, and neither of us wants to have to deplete our savings to make it happen. So we are looking into other options.
You might be in a similar situation — or one that’s even worse. If you can’t pay your taxes, the good news is that there are options. Here’s what you need to know if you aren’t ready for your tax bill:
Don’t Ignore the Problem
It’s tempting to avoid filing your tax return when you are in this situation. However, this is one of the worst things you can do. There are penalties when you don’t pay your taxes, and penalties when you don’t file your return. Ignoring the problem only makes it worse as the penalties and interest pile up.
Instead, make sure you understand your options and move forward in a way that allows you to maintain your financial situation.
IRS Installment Plan
One of your best options is to turn to the IRS installment plan. My ex-husband is actually using this option to help pay our joint tax bill. As long as you owe less than $50,000 in combined taxes, penalties, and interests, you might be eligible to apply online. You let the IRS know how much you can pay each month, and as long as you can pay off your bill within six years, there is a good chance that you will be approved.
There are fees associated with this plan, but they are usually smaller than what you would see if you got a bank loan to pay your taxes, and certainly smaller than what you would see if you put your taxes on a credit card.
It’s true that you can borrow to pay your taxes, but this can only compound your problem. Making regular payments to the IRS can help you avoid high interest debt, while still allowing you to make manageable payments. As long as you don’t put it off too long, and as long as you file your return as required by law, the IRS is usually reasonably accommodating when you act in good faith.
Get Professional Help
While it’s possible for you to make these arrangements on your own, it can be a good idea to get professional help. Our taxes were complicated by the fact that we divorced last year, but we had a business together that had to be dissolved, and I had to register a new business.
Rather than take the time to sort out the snarl on our own, we hired a great accountant to help us out. He talked us through the process, helped us rectify mistakes made by a former accountant, and helped us understand and apply for the IRS installment program. Even though it cost some money, our time and peace of mind were worth it, and I’m glad we got the help we needed.