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How to Pay Taxes When You're Broke

1.

Determine if you need more time to pay taxes, if you need to pay in installments, or if you cannot pay at all.

2.

File tax returns on time, even if you don't have money to pay. You will be penalized 5 percent a month for late tax returns, and 0.5 percent a month for not paying on time.

3.

Fill out an extension form (Form 4868) by April 15 (April 17 in 2000) if you need more time. The IRS will give you an automatic extension until August 15.

4.

Estimate the amount you expect to owe and pay whatever you can.

5.

File Form 2688 by August 15 if you still need more time. The IRS may grant you an additional two-month extension.

6.

File an Installment Agreement Request (Form 9465) if you don't have enough money to pay your taxes. Indicate how much you can afford each month and when you will pay.

7.

Prepare an Offer in Compromise if you know you'll never be able to pay off your large tax bill. Offer to pay a lesser amount to settle the bill immediately.

Tips and Warnings

  • Consult with a tax professional to learn more about requirements for an Offer in Compromise.
  • Consult with an attorney or accountant if you are unclear about how to proceed, or if a lot of money is at stake.


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