Tax season produces a lot of anxiety for small business owners and freelancers alike. You know that, unless you managed to guess your profits very closely, the odds are high that you owe the taxman a pretty big check.
What if you can’t pay? First: Don’t panic. You aren’t the first person to be in this position, and you won’t be the last. Here’s what you should consider doing:
- File a timely return: Even if you can’t pay anything right now, you still have to file. Not filing a timely return will expose you to additional penalties from the Internal Revenue Service (IRS), and make your situation worse.
- Pay what you can: The IRS does take partial payments. Putting as much money as you can on the bill will significantly decrease the interest you’ll have to pay over the long run. If you have any assets you can cash in to cover the bill, it might be time to consider it.
- Ask for an installment agreement: As long as your tax bill is under $50,000, you can get an installment plan that will eventually let you pay off your debts. Just be current with your tax returns before you ask.
- Ask the IRS to waive penalties: This is sometimes possible if you’ve made a good-faith effort or have a reasonable explanation for why you’re unable to pay. The IRS generally takes the approach that they want to make it possible for debtors to catch up, so they may be lenient.
- Offer a compromise: If your tax debt is overwhelming, covers several years or is the subject of dispute, an offer in compromise might allow you to make a lump-sum payment and settle the issue.
If you owe taxes that you can’t afford to pay, it’s important to understand all of your legal options.