You might be avoiding many things in life – getting an oil change, dishes in the sink, yard work – but one you cannot overlook is tax debt.
About 18 million Americans owed taxes in September 2014, as per the recent analysis, about 10 million face tax penalties each year according to IRS.
Here are a few tips that will help you handle your tax debt to minimize penalties and resolve your obligation.
FILE YOUR TAXES – EVEN IF YOU CAN’T PAY
If you are still left with a balance to pay, make sure you file. Overlooking your taxes will make the situation terrible, says Michael Kay, a professional financial planner from New Jersey.
If you don’t file until the deadline, you might face a monthly penalty of 5% of unpaid taxes, up to 25% of your balance, making your tax debt even worse.
MAKE A PAYMENT PLAN, DELAY PAYMENT, OR SETTLE
If you cannot pay taxes in full within 120 days, then the IRS also provides options to help manage your balance:
REQUEST A PAYMENT PLAN
Along – term payment plan, also called an installment agreement, is good if you need more than 120 days to pay the balance amount. Make sure that these payment plans can add fines and interest to your debt and are only obtainable if you owe less than $50,000, including fines and interest.
You can postpone payment on a temporary basis on a tax debt if you can prove that paying the debt would avert you from affording your basic needs.
SETTLE FOR LESS THAN YOU OWE
The “offer in compromise” can ask for help to resolve the debt with the IRS for fewer than you actually owned. You will have to show paying the debt that would cause financial turbulence to qualify.
TAP AN EXPERT FOR ASSISTANCE
Tax debt can be risky. Kay suggests seeking advice from a certified public financial planner or accountant to make sure you are handling tax situations in the best way possible.