can't pay my taxes

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can't pay my taxes

Postby southwest_stacker » Sun Mar 24, 2013 6:21 pm

I am self employed. Have been for many years. I made all my quarterly payments in 2012 but just heard from accountant that I will have a large tax bill.

I made a lot in 2012 but did not think the taxes would be this bad. Most of the money we made was used to pay off debts and then we had a major business expense in January that was nearly 6 figures. Our cash reserves are pretty much non existent at the moment.

The good thing is we are completely debt free right now but we don't have the cash to pay our taxes.

I have never been in this position before. Should I try to make arrangements with the IRS or take out a loan? I should be able to have the total amount due by May or June at the latest.
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Re: can't pay my taxes

Postby damjam » Sun Mar 24, 2013 6:31 pm

Your accountant should be able to give you your options.
If you can pay within 60 or 120 days you can do that. You simply request the extension of time.
Interest and late payment penalty apply but there is not additional application or user fee.

If you need more time you must complete form 9465 "Installment Agreement Request," Interest and late payment penalty apply and there is an additional user fee.

Call 1-800-829-1040 for more information.

Depending on your credit options it may be less expensive to borrow.

See IRS Penalty Facts
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IRS Collection Process

Postby Taylor Larimore » Sun Mar 24, 2013 6:37 pm

S.S.:

Don't panic. You are not alone. Having once served in the IRS, I think you will find them reasonable if you simply follow their instructions (assuming you are not trying to evade your tax liability).

Use this link for guidance:

The Collection Process

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
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Re: can't pay my taxes

Postby Epsilon Delta » Sun Mar 24, 2013 8:58 pm

And whatever you do make sure you file on time, or file for an extension, or both.
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Re: can't pay my taxes

Postby kitteh » Sun Mar 24, 2013 10:54 pm

As Taylor says, the IRS is quite decent. I cleaned up after an incompetent executor who filed no tax returns for several years.
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Re: can't pay my taxes

Postby TerryDMillerMBA » Mon Mar 25, 2013 7:52 am

I am speaking from DIRECT experience, having dealt with this in the 90s:

Follow the advice from the poster above as far as filing ON TIME, and filing the extension. These steps cost you nothing.

If you need to do an installment agreement, then you could file that form later.

I don't know how much you owe, but you are in MUCH better shape if it is not five figures. I know that from personal experience.

Discuss this with your accountant immediately.
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Re: can't pay my taxes

Postby dickenjb » Mon Mar 25, 2013 8:30 am

TerryDMillerMBA wrote:I don't know how much you owe, but you are in MUCH better shape if it is not five figures. I know that from personal experience.

Discuss this with your accountant immediately.


If it were only 4 figures he wouldn't have a problem paying it.
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Re: can't pay my taxes

Postby southwest_stacker » Mon Mar 25, 2013 8:31 am

Thanks for all the advice.

I am definitely filing on time and am going to visit with accountant on options.

The amount I have due on April 15 is 5 figures but I will be able to pay over half maybe 3/4 of it on time. The remainder I should be able to pay in May or June.
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Re: can't pay my taxes

Postby sscritic » Mon Mar 25, 2013 8:43 am

dickenjb wrote:
TerryDMillerMBA wrote:I don't know how much you owe, but you are in MUCH better shape if it is not five figures. I know that from personal experience.

If it were only 4 figures he wouldn't have a problem paying it.

How much easier is it to pay $9,999 than $10,001?
How much does it cost to reduce a 5 figure debt to a 4 figure debt? Answer: $2
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Re: can't pay my taxes

Postby southwest_stacker » Mon Mar 25, 2013 9:35 am

sscritic wrote:
dickenjb wrote:
TerryDMillerMBA wrote:I don't know how much you owe, but you are in MUCH better shape if it is not five figures. I know that from personal experience.

If it were only 4 figures he wouldn't have a problem paying it.

How much easier is it to pay $9,999 than $10,001?
How much does it cost to reduce a 5 figure debt to a 4 figure debt? Answer: $2



I think the point is we are taking about this in a general sense. If it was close to 4 figures I would say that. I was trying to get advice on the issue at hand without really getting into specifics.

Lets just say that the total amount owed is less than 6 figures but if I were to pay 75% of it the remaining 25% would still be 5 figures.

I am greatly relieved to hear that there are options. When you think of owing money to the IRS that is a scary idea.
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Re: can't pay my taxes

Postby Calm Man » Mon Mar 25, 2013 10:50 am

OP, you will get this cleared up. And then going forward, make sure you pay your estimated taxes properly. Just use 100% of the prior year's tax bill or 100% if you earn more than I think 150K. Your accountant should have advised you on this as it sounds like even if you had the money you would have late penalties for late estimated taxes anyway.
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Re: can't pay my taxes

Postby Breezy » Mon Mar 25, 2013 5:03 pm

Also, have your accountant run some scenarios for if you deposit money into a Solo 401K or some other retirement instrument. You'd need the money to deposit by April 15, but it would lower your tax bill.

And - not sure how much you're talking about, but seeing as you're debt free, you could sell a vehicle or something to raise cash, couldn't you?

(Having said that, the penalty won't be too bad if you can send most of what you owe by April 15.
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Re: can't pay my taxes

Postby MarkNYC » Mon Mar 25, 2013 6:11 pm

southwest_stacker wrote:

I am definitely filing on time and am going to visit with accountant on options.

The amount I have due on April 15 is 5 figures but I will be able to pay over half maybe 3/4 of it on time. The remainder I should be able to pay in May or June.

You have two practical options and either one should work. You can file the return on April 15th and pay what you can. About 6 - 8 weeks later you'll get an IRS notice requesting the unpaid balance. That should hopefully coincide with your obtaining the necessary funds, so you can then send in the balance due according to the instructions on the notice.

The second option is to file an extension along with a partial payment. Then when the funds are available in late May or June, file the return along with the balance due. In either case there will be interest, and also a late payment penalty of 1/2% per month if the tax owed after 4/15 is greater than 10% of the total tax on the 1040. The advantage to the second option is that if the funds don't become available until several months later than expected, you won't be subject to the ongoing IRS collection notices that will automatically be sent after you file the tax return with less than full payment.

A word of caution on filing extension Form 4868 in this type of situation. You should list on line 4 of the form the proper amount of "estimate of total tax liabilty" so that the balance due on line 6 is greater than the actual "amount you are paying" on line 7. Some people intentionally and incorrectly reduce the line 4 and 6 amounts so the "balance due" amount equals the amount they have available to pay. The risk here is that if the line 4 amount is significantly lower than the actual tax that shows on the the filed tax return, the IRS can later claim the tax was not properly estimated for extension purposes and retroactively disallow the extension, resulting in late filing penalties. This is rare but can happen.

Since you won't have full payment available by April 15th, you presumably won't be able to pay first quarter estimates and will need to catch-up on those later.

You did not mention state taxes, but if any are due I would be inclined to pay off the state first since states in general can be more difficult to deal with than the IRS.
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