Did you skip filing or request an extension on your 2021 taxes because you couldn’t pay? You have several options.
It’s happened to many people at one time or another. You wait until the last minute to prepare and file your income taxes, only to receive a very unpleasant surprise: You owe money, and you don’t have it to give. Even if you file for an extension, the IRS still expects you to send in what you estimate you’ll owe. If that’s absolutely impossible, you should always try to send in what you can.
The first thing you should do, of course, is to review your 1040 again. Did you take all of the credits and deductions that you should have? Or make any calculation errors? Did you somehow overstate your income?
If after checking your return you still see that large number on line 37 (Amount you owe), try not to despair. And certainly, don’t neglect to file. Instead, take advantage of one of the many options you have.
If you have to enter a big number on line 37 and you lack the funds to pay the IRS, there are several different steps you can take.
This is the best solution if it’s possible. Consider approaching family members who you know might have enough disposable income to help you out temporarily. If that’s not possible, check with your bank or credit union or online lenders. Paying interest may be more economical than dealing with IRS penalties and interest – and less harmful to your tax-paying history.
If you qualify (and most individual taxpayers do), you can set up an online payment plan through the IRS itself. You don’t have to contact the agency. It can all be done on the web. Once you’ve provided the required information, you’ll be notified immediately about your approval status. There are two types:
You can use this IRS tool to see if you pre-qualify for an Offer in Compromise, which could reduce your tax bill
If you are absolutely unable to pay and the IRS can confirm this, the agency may delay collection until your finances improve. Call the number on your notice to request this action, or call (800) 829-1040. Interest and penalties will continue to accrue during the delay.
You may also be able to get your late-payment penalties reduced or eliminated if you have reasonable cause, as defined by the IRS. The agency decides whether you’re eligible for this on a case-by-case basis. If you have a solid history of compliance, the First Time Abatement program may be available to you.
It’s good to know that there are options if you can’t come up with enough money to pay your tax bill, but you can probably avoid that situation if you do year-round tax planning. Looking at your income and expenses—especially the major ones—in terms of their effect on your taxes can go a long way toward avoiding surprises at filing time. Let us know if we can help you develop such a strategy.