The majority of people who file taxes end up receiving a refund every year. However, if you fall under the percentage of filers who owe the IRS money, you may be wondering how to resolve the situation amidst the chaos of the COVID-19 pandemic.
While this process is stressful enough under normal circumstances, dealing with taxes during this current situation can be downright overwhelming. Having to pay tax during the ongoing crisis can mean disaster, especially if you are currently out of work – a reality for millions of Americans who have lost their jobs in the past few weeks.
Fortunately, your dependable McAllen CPAs and virtual CFOs at Murray & Kirchner CPA, LLC, are prepared to help you make the best financial decisions during these trying times. If you’re dealing with a tax bill, here are a few things you can do to make this troubling situation less stressful than it needs to be.
Handling Taxes During COVID-19
1. Hold Off on Sending Money to the IRS
If things were running normally, you would only have until April 15th to fill out your previous year’s tax return and pay the IRS any money you owe back. This year, however, due to the unprecedented adjustments caused by COVID-19, the deadline to both file a tax return and pay a tax bill for 2019 has now officially been pushed back three months to July 15, 2020.
Therefore, if you’ve recently filled out your 2019 return and know that you owe money, your most ideal option is to submit that return but hold off on paying the taxes associated with it for another three months, since you are not required to make a payment the day you turn in your taxes. By doing so, you’ll allow yourself more time to save up for the payment.
2. Request Setting Up an Installment Agreement
With or without a crisis, the IRS will typically work with those who do not have the means to pay their tax debt on time. If you are in that situation, make sure to reach out to the IRS for an installment agreement. You can look at it as a sort of payment plan, where instead of writing out the total at once, you can pay out your balance over time.
If within 120 days of the deadline of July 15, you think you’d be able to pay off your balance, you won’t have to pay any fees to set up your agreement. If not, you’ll pay a modest fee for setting up a direct debit with the IRS, which could come out to less if your earning capacity is low.
3. Suggest an Offer in Compromise
An offer in compromise is an agreement to settle your tax debt with the IRS for less than what you owe. This option has existed for years and is not exclusive to the current crisis. Unfortunately, it is also worth noting that it is extremely difficult to qualify for.
Essentially, for the IRS to accept an offer in compromise, you need to prove that paying your tax debt in full will cause undue financial hardship, or that you truly don’t have the means to pay it. In addition, your offer will have to be reasonable. For instance, if you owe the IRS $8,000, it is highly unlikely that they’d accept $1,000. But if you offer to cover half, the IRS might agree given the right circumstances.
Bear in mind that a layoff being caused by COVID-19 may not be a valid reason for failing to pay your tax bill in full. Though unemployment rates are at an all-time high right now, many people are only temporarily without a paycheck, so be cautious when trying to point to the crisis as a reason to clear out some of your debt.
Speak with one of our McAllen CPAs Today
Owing taxes in the middle of a pandemic is not ideal. If you’re in this situation, there is no need to panic. Instead, with the guidance of our skilled CPAs, you can explore your financial options and see what would make the most sense for your unique circumstances.