Can’t Pay Your Taxes? Do This

Most people are rewarded for filing their taxes because the majority of filers receive a refund. But there are those who owe money to the IRS and can’t pay it, and as a result are often afraid to file.

If you can’t afford to pay your taxes, file anyway! If you file your taxes but don’t pay, you will be assessed a 0.5% penalty per month. However, if you don’t file your taxes, that penalty climbs to 5%, a ten-fold increase.

So the moral of the story is to file no matter what. But if you can’t pay, consider other options. The best option is usually an interest-free loan from a friend, family member, or boss. Second-best might be a signature loan through a credit union. You may also pay with a credit card; however, the fee is around 2.5%, plus the interest expense of your credit card.

What some often fail to consider is working out a deal with the IRS. The IRS may be demanding, but they can be accommodating, as long as you contact them first. Always pay what you can, and try to work out an installment agreement for the balance.

Finally, if you ever find yourself in a huge hole with the IRS, don’t panic. Contact your financial adviser and come up with a plan to contact the IRS and work yourself out of the financial hole. It is doable, but you will likely need help walking through the process.

About cozbycpa

Heather L. Cozby is a CPA on the South Shore and Cape Cod. The managing partner of Cozby & Company, LLC, Heather has the resources and experience necessary to provide quality professional services on a timely basis and at a reasonable cost. She specializes in tax planning & preparation; audit, review & compilation services; management advisory services; bookkeeping; and accounting. Her unique niche is in working with homeowners’ associations and condominium trusts, advising with rental real estate, and providing outsourced financial consulting for mid-sized companies. She is more entrepreneurial than most accountants, and offers the best of both worlds - providing the services of a larger firm while retaining the ability to connect with her clients on a personal level.
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