As the
Internal Revenue Service's April 15 deadline for filing 2018 U.S. personal income tax returns approaches, some taxpayers will find themselves short of the amount they need to pay their tax bill. Miron Lulic, founder and CEO of
SuperMoney, an online platform for evaluating financial services products, notes that the consequences of not filing a return or not paying taxes include missing out on a refund, or incurring interest charges, penalties and levies. Whether the problem is a short-term cash flow constraint or an unexpected tax liability, Mr. Lulic has a few tips on how to handle the situation.
1. File your tax return on time, especially if you can't afford to pay what you owe.
If the government owes you money, not filing a return means not getting your
refund. It also opens you to the possibility of
identity theft, with someone else using your
Social Security number to claim your refund.
If you owe the government money, not filing your return means that you've added a late-filing penalty to the taxes you owe and the interest the IRS will charge you on unpaid taxes.
(More: Taxes, investment returns and the new Form 1040)
2. If you owe less than $10,000, deal directly with the IRS.
People whose tax debt totals less than $10,000 can apply online for a guaranteed installment agreement with the IRS in which they commit to paying off the debt within three years. Note that the IRS currently charges 9% interest on tax debt.
3. If you owe less than $50,000, you might qualify for other types of payment plans.
Consider talking to a tax professional if you owe more than $10,000.
Streamlined installment agreements require that you repay the debt within six years. You have to make the payments via a payroll deduction or a direct debit.
4. If you owe the IRS a lot and you have income or assets to protect, talk to a tax professional.
The IRS can put liens on the property of those who owe large amounts of taxes or it can collect from their bank accounts. An offer in compromise is a deal in which the IRS agrees to accept a lump sum that is less than what the taxpayer owes. But the process is complicated and only about 40% of applications are approved, so you might want to hire a tax professional to help you.
5. If you have low income and few assets, the IRS might give you a temporary pass.
If there's no way you can afford to pay the IRS, the agency might classify your debt as "currently not collectible." Achieving that status requires filing any past-due tax returns, providing the agency with information about your finances, and undergoing annual audits to assess whether your financial condition has improved. Although the IRS stops trying to collect the tax debt, it continues to levy interest and penalties on the debt. Again, you may want to consult a tax professional before applying for this status.
(More: Cap on SALT deductions will affect nearly 10.9 million people)
