For many New Jersey residents, tax time is a time to rejoice, as it means a return on all the excess money they paid into their taxes throughout the year. For others, however, such as higher earners, small business owners and freelancers, tax time is a time to dread. These individuals often end up owing taxes. Some tax debts are as little as a couple hundred to a few thousand dollars, while others are well over $10,000. For those who owe money, tax time means refiguring their finances to pay off a large debt they cannot realistically afford.
NerdWallet details three common ways debtors can repay the IRS without going financially bust. One such way is to request a payment plan. The IRS offers long-term payment plans to those who owe less than $50,000, including penalties and interest. Penalties and interest start accruing after 120 days, which is why the financial site suggests that debtors pay off their balances in full within that time frame.
If one owes more than $50,000, or if repaying any portion of one’s debt is financially unfeasible at the moment, the IRS may grant him or her a temporary delay upon request. A delay will not last forever, however, and the IRS will seek repayment eventually, along with all accrued interest and penalties.
The final option NerdWallet suggests is settling for less than one owes. If a person chooses this option, he or she would have to prove that paying the debt in full would cause financial hardship.
If any of the above options are not viable, eFile.com recommends debtors ask themselves if they truly do not have the money to pay back the debt. Oftentimes, the answer is no. Tax debtors should consider other options when the IRS denies them a payment plan, delay or settlement. Some such options include the following:
- Look for ways to cut back on a daily basis.
- Cash out paid time off work.
- Sell assets such as real estate, vehicles, etc.
- Liquidate retirement or savings accounts, bonds or stocks.
- Borrow money from the bank, online lenders or family.
eFile cautions debtors to be aware that some of the above options may only be a good idea if any interest or penalties on the tax debt are more than what they would pay on, say, a bank loan. Also, if liquidating a retirement account or savings would ruin a person’s chance at a financially stable future, he or she should consider other debt relief options.