These are the best IRS options if you can’t pay your income taxes

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The tax extension deadline is approaching on Oct. 17, and a record 19 million Americans applied for more time to file their 2021 returns, according to the IRS.

While unpaid tax balances for 2021 have racked up late payment penalties since April 18, filers with tax debt may have more options than they think, experts say.

“The IRS is not the boogeyman,” said Sheneya Wilson, a CPA and founder of Fola Financial in New York City, which urges branches not to ignore notices from the agency.

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“My biggest piece of advice is don’t be negligent,” Wilson said, explaining how IRS tax issues become more difficult to resolve when filers ignore the agency’s correspondence.

“It just makes it harder to set up a payment plan,” she said.

If you are struggling with tax debt, here are some options to consider.

My biggest advice is not to be careless.

Shaneya Wilson

Founder of Fola Financial

1. Installment agreements

The most popular option is to apply for an installment agreement, a long-term monthly payment plan through the IRS, according to Wilson.

If you owe $50,000 or less, including taxes, penalties and interest, you can set up an installment plan online, which “takes about five minutes,” but you’ll have to call the IRS for larger amounts, she said.

However, the agency will not approve the plan with other unfiled returns.

Of course, you’ll want to agree to an affordable monthly payment, and you’ll need to pay future taxes on time to avoid defaulting on your agreement, the Taxpayer Advocate Service has warned.

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2. Offer in compromise

Another option, known as an offer in compromise, may allow you to settle for less than you owe. However, the IRS encourages taxpayers to explore “all other payment options” first.

If you can show you’ve been through some kind of financial hardship, it may be possible to reduce your liability through an offer in compromise, Wilson said.

“The IRS allows you to significantly knock down the total amount owed,” she said.

To qualify, you must be current on all tax returns, unless there is a valid extension on file, and current on required estimated tax payments.

You can use the Offer In Compromise Pre-Qualifier tool to assess your eligibility and submit an application from the offer in compromise booklet.

3. Currently not collectible

There is also a “currently uncollectible” status where the IRS temporarily stops trying to collect unpaid balances.

But if approved, the outstanding debt can still collect penalties and interest, and the IRS can use your future repayments to cover the balance, according to the taxpayer advocate. You also need to stay up to date on future taxes.

Ask the IRS about penalty relief

You may also qualify for penalty relief if you were unable to comply due to “circumstances beyond your control,” according to the IRS.

For example, if a first-year company accidentally misses the corporate filing deadline or its auditor gets backed up, “that may be reasonable cause to ask for abatement,” Wilson said. “A lot of taxpayers don’t know.”

While taxpayers may experience long hold times, the IRS can process some penalty abatement requests by calling the number on your notice.

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