Is it possible for me to catch up on my tax payments and avoid accumulating more debt if I'm self-employed, make around $40,000 annually, and have struggled to pay estimated taxes due to living expenses, especially since I don't receive refunds like individuals with regular jobs, and what steps can I take to improve this situation?

It's really easy to get deeper and deeper in debt in this situation. When you are self-employed you are responsible for saving enough money to pay your tax liability. Regular W-2 employees usually don't have to worry about that, because their employers withhold Social Security and Medicare and income taxes from their paychecks. The refunds that W-2 employees get can be from extra withholding and/or tax credits.

If your current income isn't enough to pay your living expenses and stay on top of your tax liabilities, you need to either make more money and/or reduce your expenses. Or you keep going further and further in debt.

First thing to look at is are you taking all legitimate expenses on your tax return? Are you taking all adjustments to income that you are eligible for? As a self-employed taxpayer you can lower your income for federal & state taxes if you pay for your own health insurance and/or make retirement contributions.

If you are claiming all your legitimate expenses on the tax returns then you have to look at making more money. Honestly if you can find a W-2 job with net pay that will cover your living expenses and the payments on your tax debt, that might be the best option for you.

This isn't a permanent solution, but you might need to look at whether you qualify as Currently Not Collectible (CNC) with IRS. Look at this page and fill in Form 433-F:

Currently Not Collectible

For some of the living expenses you can use allowable standards found here:

Collection Financial Standards

You generally can't include any credit card payments as part of your expenses. You should include estimated tax payments as part of your monthly expenses and see what result you get. The easiest way to do this is to take the Total tax amount on your last tax return and divide by 12 for the federal tax portion; you may need to do the same for state taxes.

Take your monthly income and subtract your monthly allowable expenses. If you get $0 left over, then you should qualify for Currently Not Collectible status. If you get an amount more than zero but smaller than your monthly installment payment, you should qualify for a lower monthly payment amount.

Getting CNC status means you aren't required to make monthly payments to the IRS until your financial situation improves - you usually have to recertify every year, esp if you continue to accumulate tax debt. The tax debt doesn't go away and you continue to accrue penalties and interest on the debt. But hopefully that would give you some breathing room and the ability to make some estimated tax payments.

If not, you might need to look at eventually making an Offer in Compromise or declare bankruptcy. It is possible to stay in Currently Not Collectible status until the tax debt hits the Collection Statute Expiration Date, which is usually ten years after the taxes are assessed. Bankruptcy usually isn't a great option if you only have tax debt, but it can be if you have other debts that you can't pay.