Can’t Afford Your Taxes Due to the COVID Economic Crisis?
Typically, federal income taxes are due on April 15, but the federal government extended the deadline to file your 2019 income taxes to July 15. Many states also moved their deadline to July 15 to accommodate those who needed more time to pay because of the pandemic. With the COVID crisis leading to an unemployment rate that surpassed 14% at one point, however, many people are still having trouble paying their state or federal income tax bills.
Enter Into a Payment Plan
If you owe less than $50,000 in federal income taxes, you may be allowed to enter into a payment plan with few or no questions asked. Generally speaking, the only requirement is that you make payments each month and pay the balance owed within 72 months.
You will also be required to pay interest on the balance owed until it is repaid, and the government will likely require you to make all future tax payments on time. A Cherry Hill, NJ tax lawyer may be able to answer any questions that you have about paying federal or New Jersey state taxes over a period of several months or years.
Put the Balance Owed on a Credit Card
You can generally use a credit card to pay state or federal income taxes. However, it is important to note that credit cards typically come with interest rates of 20% or more, which is significantly higher than what you’ll pay to the state tax agency or to the IRS. You may also be charged a service fee of up to 2% of your payment. It is also worth noting that it may not be possible to discharge the debt in bankruptcy. Therefore, it is important that you carefully consider the pros and cons of using a credit card as a method of paying a tax debt before doing so.
Ask That the Debt Be Waived or Eliminated
State and federal tax collection agencies are not interested in collecting money from people who legitimately cannot afford to pay their past due balances. If you can show that you have no way of paying down an outstanding balance in the next few months or years, that balance could be reduced or eliminated entirely.
Depending on how much you owe, the government may ask to review your current financial situation to determine how much you can pay without creating an undue hardship. Generally speaking, you will be expected to sell assets or take other steps to raise cash before state or federal authorities will consider waiving your obligation to pay.
File for Bankruptcy
While a bankruptcy may not eliminate your tax debt, it could postpone any efforts to collect what you owe. In many cases, interest will not accrue on a debt while a bankruptcy case is ongoing. Furthermore, it will likely prevent a tax agency from placing liens on your property. Filing for bankruptcy may also eliminate other unsecured debts, which may free up the money needed to pay your taxes. You should be aware that a bankruptcy will remain on your credit report for up to a decade, and this will negatively impact your ability to obtain loans in the future.
Pay Whatever You Can Right Now
Paying some of what you owe is much better than paying nothing and hoping that the problem goes away. Generally speaking, tax agencies tend to be more forgiving of those who make a good faith effort to resolve any tax problems that they have. A Cherry Hill, NJ tax lawyer could communicate with the IRS or state tax agency on your behalf if you don’t feel comfortable doing so on your own.
If you don’t think that you can pay an upcoming tax bill on time, it may be a good idea to contact the Dopkin Law Firm in Cherry Hill. You can do so by calling 215-519-4269 at your earliest convenience.