Got a Big Tax Bill? Don’t Avoid Filing

Updated for tax years 2023 and 2024.

Avoiding problems rarely leads to a satisfying resolution, and ignoring a large tax bill is no different. In reality, the more a taxpayer ignores their tax bill, the bigger it can get. But owing a lot in taxes shouldn’t stop you from filing — it’s usually better to tackle the issue head-on. If you owe a lot in federal or state income taxes this year or suspect you do, here are some tips to remember.

1. You can avoid penalties for late filing, even if you can’t pay the total tax due.

Not filing your federal tax return at all can be tempting if you can’t pay the amount of tax due. After all, the Internal Revenue Service (IRS) doesn’t immediately miss your tax return. And who wants to complete their return if they even suspect the results will be bad news? By completing your return, you’ll find out exactly what your tax liability is, and you can begin making plans to deal with it.

You may not be able to avoid a tax bill, but you can minimize the damage by filing your return on time. The IRS imposes a failure-to-file penalty if you don’t file your tax return by the filing deadline. This fine is separate from any interest and failure-to-pay penalties you may owe on late payments.

If you don’t have the information to complete your tax return by the due date, you can file for a six-month tax extension, but note that this won’t give you more time to pay your tax bill. However, you should still finish your return as soon as possible — it won’t be any easier five and a half months from now.

2. The sooner you pay the tax due, the less you’ll pay in interest and penalties.

Taxes and interest are imposed on your tax bill starting from when you should have paid them. That may be when your tax return is due — typically April 15. And if you owe more than $1,000, you may already owe interest and late payment penalties for not making sufficient quarterly tax payments.

You can’t go back in time, but the fastest way to stop accruing interest and penalties on past-due taxes is to pay them off as soon as possible.

It may be tempting, but be cautious about using your credit cards or taking on other debt to pay your tax debt. By the time you pay transaction fees and higher interest rates, you may have been better off paying the IRS directly, even if you can’t pay it all at once — their interest rates are typically much lower than what a credit card company offers.

3. The IRS offers payment options.

If you have unpaid taxes and can’t pay your tax bill all at once, the IRS offers payment plan options:

• Short-term payment plans: If you can pay your tax bill within 180 days, you can ask for a short-term payment plan. You’ll still pay penalties and interest until the balance is paid, but there are no fees for setting up a short-term plan.
• Long-term payment plans: If you don’t think you can pay off your big tax bill within the next 180 days, consider asking for a long-term payment plan called an installment agreement. You can apply online, by phone, by mail, or in person. Setup fees will apply, and you will continue to accrue penalties and interest until the total bill is paid, just like a short-term plan. You will pay lower setup fees if you agree to automatic monthly payment withdrawals, apply online, or qualify as low-income.

4. You may qualify for an abatement of penalties.

If you cannot file your tax return or pay because of some extenuating circumstances, such as a serious medical crisis, you can write to the IRS and request penalty relief. You should specifically ask for an abatement of penalties. The IRS does not offer interest relief.

5. If you really can’t pay, seek help.

Sometimes, people get into deep tax trouble that they can’t work their way out of. If you owe more in taxes than you have in net assets, for example, you may need to consider filing an Offer in Compromise (OIC) with the IRS.

An OIC allows you to settle your tax debt with the IRS. The IRS compares your net assets (assets minus liabilities) to the amount you owe and may forgive part or all of your tax bill. They also consider your ability to pay based on your income and expenses. An OIC is not to be taken lightly — it requires considerable paperwork and is not always accepted. However, it may be the best option in a seemingly impossible tax situation.

TaxAct® can help.

If you’ve been putting off filing your taxes, let TaxAct help. Whether you’re expecting a tax refund or a tax bill, our tax preparation software is here to guide you through the filing process. We’ll ask you some questions to determine potential ways to save with tax deductions or credits, and we can even help you set up an IRS payment plan if needed.

This article is for informational purposes only and not legal or financial advice.

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