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An unexpected tax bill can create economic havoc in your life.

There are times when you do get a tax bill and find you owe taxes, and it always seems to be at the worst possible time. The well just went dry and you have a new well being drilled—then the tax bill arrives. You were in a car accident with an uninsured driver and you ended up with the repair bill—then the tax bill arrived. Your daughter just called from college and had an extra, very large school fee due yesterday—and the tax bill arrived today. Isn’t that always the case?

So what is the best way to proceed to pay taxes when money is short? The IRS suggests a number of different ways to get over this bump in the road.

Once that bill arrives, if you are at all able, pay it as soon as you can. This will save you money in interest and penalties. The IRS accepts payment by check, money order, cashier’s check, or even cash. If you don’t have money available or don’t have all of the tax bill money available, consider getting a short term loan so that you can get totally rid of the tax bill immediately. It is not fun, and the IRS penalties are brutal, if you can’t get this bill paid promptly.

The IRS will always accept your money, and one of the newer methods is to accept an Electronic Funds Transfer. There is a place for this on the IRS website or you can pay by phone. The IRS also accepts credit or debit cards. The credit card company may charge you extra for this cash payment, but weigh that fee against the IRS fees. It may be worth it.

Uncle Sam, vis a vis the IRS, can offer you a short-term payment agreement. This is for folks who know that they can pay the entire amount due within 120 days. There is no set-up fee for this arrangement, and you can become enrolled on the IRS website (Online Payment Agreement) or by phone.

What  If  You  Can’t  Pay?

If the amount you owe is more than you can pay and you can’t get a loan for it, and basically you are at wits end to get rid of this debt, the IRS can possibly approve you for an installment agreement. This is specifically for tax debt less than $50,000. You can apply by filling out the Online Payment Agreement (found on the IRS website). Once approved, you can set up direct drafts against your bank account which is critical if you don’t want to miss a payment (disaster!). There are some fees that you will be assessed when this payment program is set up. If you owe over $50,000, there are different forms to be filled out and fees will apply.

There are also several programs for which you might qualify. Tax lawyer Jeff Fouts has discussed the Offer in Compromise in several of his other blogs, but in brief, this program is set up to collect what you can pay, rather than what you owe. There are some hoops to jump through in order to qualify, but if your taxes are significant, you do need to consider this option. There is also Fresh Start, another IRS program. Expressly set up for individuals and small business, this program will make it easier for you to pay the back taxes without the threat of a tax lien.

Send  More  Money!

If you should find yourself in the position of owing more taxes, consider changing your tax withholding levels right now. If employed, all you have to do is to file a revised W-4 form with your employer. If self-employed, immediately increase the amount of tax money that you submit to the government monthly or quarterly. This action will probably help you avoid this same, tax-owing situation next year.

Owing and not paying your taxes is a serious matter and can trigger a number of other government actions. If you should find that your tax situation is out-of-control, contact Jeff Fouts, Tax Lawyer, for assistance in solving your problems.

 

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