Pay Taxes when You Have No Money

It's tax time, you were just laid off, you know you won't have the money to pay your debts, and you are scared. You know just how rough the IRS can get when they don't have their money, and you don't want you or your family to go through that. So what can you do?

Well, there are actually a few options. Number one, you must on time. Even if you can't pay them. If you don't, they add 5% a month for not filing on time, and 0.5% for every month you don't pay. If you already don't have enough, don't make it worse by waiting.

Next fill out a Form 4868, an extension plan. By using this, you will automatically get an extension until August 15th, giving you a few extra months to get a job or pull some money together.

What if that's not enough though? In this case, file a Form 2688, another extension. This grants you two more months, however, unlike the guaranteed extra time from the 4868, this one is a possibility. From what I have seen, they usually grant it, but be prepared for them declining just in case.

Two months have passed . . . and still not enough. You should, before this time, really asses your lifestyle. If you could not pay taxes in the first place, do whatever you can to cut expenses. Sell some unused or unneeded toys and furniture. Spend less on food, stop eating out, stop going to movies or anything else that wastes money without a necessity attached to it. Also, if you have a wife and/or children, ask if they can try to get a job to help pay expenses, it may get you just enough to pay the taxes.

But if the two extra months were not enough, there is one final thing you can do.

Form 9465 allows you to pay in increments. You will tell them how much you can pay a month, and they will take or deny it. You can also prepare a "Offer in Compromise" to avoid going to Federal Prison. In this case, you pay them whatever you can and the debt is abolished. However, as you can assume, your credit will be severely damaged, but the debt will be gone.

There are a few options available if you cannot get up the funds to pay your taxes, and as soon as you find yourself in this predicament you should start making changes to get extra money up.