What You Should Do If You Can't Pay Your Taxes | Mark J Kohler

If you're watching this video, there's a good chance you're completely stressed out and wondering, what are you going to do to pay these taxes? First of all, realize you're not alone. All of us at some point have had to file our taxes, stressed out about how much we may owe and what to do. Frankly, you have choices, you have options. Let's look at the timeline and how you can avoid excessive penalties. Interest with two or three options. First, let's look at the time period you might be in. Some of you might be here right before April 15th. Always file by the first deadline stressed out that you've got to file your taxes and you can't pay. Others of you might be between April 15 and October 15 under extension. And then the rest of you might be after October 15th and really nervous. Let's talk about these different time periods because there's some things you can do at each stage of the game. Now let's talk about this first phase between January 1 and April 15. The biggest takeaway I want to make here is don't stress out about filing an extension. In fact, you reduce your chances of an audit by filing an extension and waiting to file. Statistics have always shown this, and I don't know why so many people freak out and stress out that they've got to file by April 15. File an extension even if you owe. If you don't file an extension and do nothing, it gets much worse. You always want to file an extension. And then we'll talk about at least filing your tax return. But file it. Figure out what you think you might owe, pay what you can. But if you can't pay, it's not the end of the world. What starts to accrue are some penalties and interest. Now, the interest rate is 6%. Let's put that in red here. The interest rate starts per annum, 6% annually. That's not too bad. I mean, that's far better than a credit card. But the penalties start to add up. They're a half a percent per month as this starts to tick along. So think about it. If you need two or three, maybe four months to pay your taxes, you file an extension. You work on your tax return. Try to come up with a better result. Look for extra write offs. Well, four months at a half a percent per month, that's 2% plus 6, you're out 8%. That's better than many home loans out there per annum. So that's okay. It's not the end of the world. But if you don't file an extension. Now you have the failure to file penalty which adds in another 5% per month. And this starts to kick in when you don't file anything at all. So number one takeaway, file an extension by April 15th and start stockpiling some money and get that payment made as soon as you can and file your tax return. Now for those of you in this extension period, as I alluded to before, you, you want to start saving up money everywhere you can, maybe borrow from family, friends, refinance your home, try to find some money at a very low interest rate. Putting it on a credit card may not be the best bet in this phase of the game because we've got to avoid those excessive interest rates on a credit card because we're only paying the IRS 6% and then it's going up a half a percent per month. So Even during this six month phase, the maximum interest paid would be 9%. But save up your money and get there and then make sure you file your taxes by October 15. Again, the failure to file penalty is 5%. And let's get that up here. Failure to file is 5% per month. Now this goes up to a maximum of 25% of what you owe and then the interest goes to as high as 25%. So this can really up. You can be out 50% in total penalties and interest on what you originally owed. And that's when it starts to snowball. Now for those of you that are facing a scary situation where you filed by October 15th and you still owe and again, always file. When I said the penalties could be as much as 50%, it's really 47.5% if you just ignore it and let it just snowball. So if you owe the IRS $10,000, you're going to have to pay them an additional 4,700 DOL on top of the original 10,000. So it can get ugly. But let's say you're in this predicament. What do you do? Well, the first thing I would suggest is request more time to pay. You can do this online or over the phone and you can request for 120 days to make some payments. This will help abate some of the penalties and interest when you start communicating with the IRS again. So many people they just go into a hole and they don't even call the IRS and hope it's going to go away and it only gets worse. Call them up and ask for the extra 120 days. And think about it. If you've already taken six months before the extension deadline to save up some money and ask for another 120 days. I mean, this could give you another four months to say, you know what? I can come up with this amount of money I owe again, big borrowing, stealing. Well, not stealing any money, anywhere you can find it. The next thing you can do is an installment agreement. Now, these have to be automatically agreed, granted, if you owe less than $50,000, which is nice, I mean, hopefully you don't owe more than that. But if you owe under $50,000, you fill out an installment agreement request. There's a fee to make the request. But now you get on a payment plan with the irs, and that can also limit penalties and interest by as quickly getting on an installment agreement. And most importantly, it also stops the harassment, I think some of you would call it. It's just the IRS trying to collect their money. They're going to send you letters and they're going to want to levy your bank account, threatening you. And that's additional stress you don't want. Now, if things are so bad that you can't even make an installment agreement, the third option is doing what's called an offer and compromise. An offer and compromise is where you cut a deal with the IRS and say, this is all I can afford to pay you now. You're going to see commercials on TV and hear it on the radio, where people are like, I settled with the IRS for pennies on the dollar, guys. It's not that easy of a process. You. Yes, some people do. And we handle offers and compromises at our law firm and accounting firm, helping clients all over the country. But it takes time. A lot of times the IRS is going to stretch this out at least a year to really see how bad you've got it. If you start to make money, they're not going to cut you a deal, and you're going to have to live like a pauper and show that you have no money or no future income in the foreseeable future for them to cut a deal. Because if you're going to make more money, why are they going to cut you a deal? There's some legal fees and accounting fees to get through this process. But be so careful of anyone trying to sell you this, you know, $5,000 retainer or this upfront fee to help you do an offer and compromise when they really can't cut you a deal and you end up back in an installment agreement anyway. So be really careful of the snakes in the grass. These, you know, snake oil salesman for another term to use that are trying to sell these offers. Get a second or third opinion from legit Main street accountants and lawyers that can help you through the process as well. In summary, one of the worst things you can do is ignore the situation and ignore the irs. If they're writing you letters, call them up. And remember, the IRS will never call you again. Those are scam artists. I talk about this in my blog, on my website all the time. The IRS will never call you and I get conversations with even my camera crews shaking their head. They've had those same phone calls from the IRS where they're not the irs, they're scamming you. So always expect the IRS to communicate with you via letter and then you call them, communicate, talk with them, try to cut a deal and get into one of these solutions rather than just ignore it and let it snowball into a real disastrous effect. But hang in there. You're not alone. Many, many people have been through this and you'll get through it too. Thanks so much for watching that video and I want to be your source for tax and legal strategies. It's hard to live the American dream without being out on the web on Google trying to find answers to complex questions and just clicking a mouse, hoping you got it right. My team and I want to be a huge resource to you, the law firm, accounting firm, my education resources on my site. Please continue to follow these strategies. I know they'll save you thousands now click here if you want to be a part of my newsletter. It's awesome. Weekly updates and deadlines and strategies and tips. Also subscribe to my YouTube channel. You'll love it. 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