Many scenarios can leave you owing federal and state taxes. Often you don't find out just how much until this time of year.
If this is the first time you cannot pay your California tax bill in full prior to April 15, you need to learn about your options. Can you stretch out the payment terms? Is there any way to negotiate a lower tax bill? How can you reduce the penalties and interest? This post will answer these questions.
The first step is to avoid a failure to file penalty by submitting your tax return on time. Paying what you can will also reduce the amount of penalties and interest that accrue.
When you are not able to pay the tax liability in full, you will receive a Statement of Tax Due. At this point you can seek help from the Franchise Tax Board.
If the amount that you owe is less than $25,000, the FTB will probably approve an installment plan. This is one way to break a large bill into manageable monthly payments. Remember that the balance needs to be paid in full within five years.
Offer In Compromise (OIC)
An OIC is an agreement with the FTB that allows you to pay less than the full amount due. These are only granted when you can show you will not have the income or assets to pay your tax bill in the foreseeable future.
A hardship or other special circumstance is often a prerequisite. Seeking help from a tax attorney is one way to determine whether you might qualify for an OIC.
If you do not work with the FTB, the state will eventually file a tax lien. You would then need to pay the tax balance before selling or refinancing any property. Proactively dealing with a tax debt is the best way to avoid a California state tax lien.