Suppose you file your taxes and discover that you owe more money than you can afford to pay. We didn't plan for this. So that you don't owe a lot of money in April or get a refund for overpaid taxes, you're advised to pay your income taxes during the year in a progressive manner. Income tax is deducted from the wages of workers. Taxpayers who are self-employed pay quarterly estimated taxes to the IRS (IRS). However, your circumstances may change or have an extraordinary one-time incident during the year. It's possible to have a nasty surprise when you submit your annual tax return—you owe hundreds or thousands of dollars you did not anticipate and do not have.

What If I Don't File Or Pay?

Please don't jeopardize your finances by failing to file your taxes or pay them in full. If you don't make an effort to pay your tax debts, the government has the power to confiscate your assets. 3 Prison terms may be an option in severe cases. Penalties and interest charges can occur in a variety of ways. Delaying the filing and payment of your tax return are the two most common examples.

Making an Erroneous Tax Payment

Form 4868 must be sent to the IRS by the due date if you cannot file your tax return by the deadline and need an extension of time to file. Because this form does not offer you an extension on your tax obligation, it is vital to highlight it. You are still obliged to pay any outstanding debts by the due date. Failure-to-file fines apply if you file your tax return late or not at all. Penalties and interest will be assessed if a return isn't submitted by the deadline. All unpaid taxes are charged at a 5 percent per month or part of a monthly rate for each month that a tax return is not filed. A failure-to-file penalty of 25% of the outstanding tax debt is imposed after five months of non-payment.

Paying Your Taxes a Day or Two Behind

Sending in your tax return but not paying the money you owe might be tempting. Failure to pay your taxes on time will add interest and penalties to the balance. If payment is not received by the due date, a daily interest rate of 3% is added to the federal short-term rate. When a debt is not paid, the penalty is computed at 0.5 percent a month of the outstanding tax liability, up to 25%.

Options for Paying Your Taxes

If you find yourself in this situation again, consider the following suggestions.

Take out a Loan

You may use your credit card to pay your tax bill for a convenience fee of roughly 2%. You might also get a bank or credit union loan to consolidate your debts. To be sure, you've set things right with the government, but the cost of servicing your debt will be much higher. Without a low-interest personal loan or a low-interest credit card, your financial position might worsen in the long run, so shop for the best deal you can find.

Extension Request

Using Form 4868 for a six-month delay on your tax return won't help. Due to this extension, there is no more time to pay your taxes; it merely provides you extra time to file your papers. The penalties and interest costs levied by the IRS might be reduced if you file your return on time.

There is a 0.5 percent per month penalty for late payment and a 5 percent per month penalty for late filing with the Internal Revenue Service. So, if you file your taxes on time, you can avoid hefty fines. Form 1127 can be used to obtain a six-month payment extension if you think you have a genuine case owing to excessive hardship.

Apply for a Payment Contract

Installment agreements are a viable option for those who cannot pay their tax bill in full within a few months. Using Form 9465-FS, you can apply online at IRS.gov or by mail. As a result of an installment agreement, the IRS will not have to take enforcement action. A monthly payment to the IRS shows that you plan to pay what you owe, notwithstanding any fines or interest.

Summary

Don't overlook the issue. If you don't make an effort to pay your tax debts, the government has the power to confiscate your assets. In addition to putting a lien on whatever assets you own, the IRS can freeze your bank accounts, garnish your earnings, take tangible items like your car, and confiscate your house.

Go ahead and submit your return and pay what you can, even if you don't have the money to do so. You should next engage with the IRS to devise a payment strategy for the remainder of your tax liability, potentially with the help of a tax professional.