Though some people might dread the idea of filing their taxes, everyone loves the idea of getting money back from the government. Most Americans can expect to get a tax refund, and even count on receiving this annual windfall from the IRS to make big-ticket purchases. That’s why it can be so disappointing to find out you have to pay when you file your return.
Owing money at the tax deadline is a particular challenge for solopreneurs, freelancers and gig workers, who often have inconsistent monthly incomes and may underestimate how much they owe the IRS in quarterly tax payments. Here are your options if your tax bill turns out to be more than you can afford.
First, it’s crucial to file your return by the due date and pay as much as you can. Otherwise, the IRS can charge you a Failure to File or Failure to Pay penalty, which are percentages of the taxes you didn’t pay on time. These penalties can add up quickly, compounding your financial difficulties.
While everyone’s tax situation is different, and there is no one-size-fits-all strategy, here’s a breakdown of your options.
If you’ve fallen behind on your taxes, but feel confident you can eventually get back on track, an installment plan might be your most appealing choice. After you file your electronic tax return, fill out an online payment agreement application on the IRS website, or mail in your taxes and attach Form 9465.
If the IRS approves your application, you will have 72 months to pay your bill if you owe $50,000 or less in combined taxes, penalties and interest.
Remember, while you’re paying your overdue taxes on a monthly installment plan, you still need to make payments on the current year, so you don’t keep falling behind.
What if you can’t come up with the money to pay your taxes, even on an installment plan? The IRS allows taxpayers to apply for an offer in compromise, which is an agreement to settle your tax debt for less than the full amount you owe. It may be a reasonable solution if you have limited assets and can’t pay your full tax liability, or if doing so would create an undue financial hardship.
When deciding whether to approve your application for an offer in compromise, the IRS will evaluate your ability to pay, income, expenses and asset equity. If the IRS accepts your application, you will generally pay 20% of your offer upfront and the rest through installments. However, if the agency decides you can pay within the statute of limitations – generally 10 years – they likely won’t accept an offer in compromise.
If you owe the IRS more than you can afford to pay, our responsive, knowledgeable team is here to help you. Taxes can be complicated, and every taxpayer’s circumstances are different, so you should consult our tax professionals for personalized advice. We’re passionate about helping entrepreneurs and small business owners make wise financial decisions, including tax-saving strategies.
At Clear View Business Solutions, we know you want your business to prosper without having to worry about whether you are paying more in taxes than you should or whether your business is set up correctly. The problem is it's hard to find a trusted advisor who can translate financial jargon to layman's terms and who can actually help you plan for better results.
We believe it doesn't have to be this way! No business owner should settle for working with a CPA firm that falls short of understanding what you want to achieve and how to help you get there.
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At Clear View Business Solutions, we know you want your business to prosper without having to worry about whether you are paying more in taxes than you should or whether your business is set up correctly. The problem is it's hard to find a trusted advisor who can translate financial jargon to layman's terms and who can actually help you plan for better results.
We believe it doesn't have to be this way! No business owner should settle for working with a CPA firm that falls short of understanding what you want to achieve and how to help you get there. With over 20 years of experience serving hundreds of business owners like you, our team of experts combines financial expertise and proactive communication with our drive to help each client achieve results and have fun along the way.
Here's how we do it:
Discover: We start with a consultation to understand your specific goals, what's holding you back, and what success looks like for you.
Strategize & Optimize: Together, we design a customized strategy that empowers you to progress toward your goals, and we optimize our communication as partners.
Thrive: You enjoy a clear view of your business and your financial prosperity.
Schedule a consultation today, and take the first step toward being able to focus on your core business again without wondering if your numbers are right- or what they mean to your business.
In the meantime, download, "The Business Owner's Essential Guide to Tax Deductions" and make sure you aren't leaving money on the table.
