If you owe income taxes, there are ways to avoid tax debt stress. Some people are fortunate enough to get a tax refund. But if you're self-employed, or if you employer didn't withhold enough taxes during the year, you might get hit with a large tax bill. However, there are simple tips to avoid tax debt stress.
To avoid tax debt stress going forward, make estimated tax payments to the IRS. This is recommended for anyone who's self-employed. When you pay estimated taxes quarterly, you can break tax payments into smaller, manageable pieces, and you’re able to pay the majority (or all) of your income taxes in full by the end of the tax year.
The IRS works with taxpayers; and for those who owe taxes, there's the option of a 120 day payment extension. By April 15, file your tax return and send whatever amount that you’re able to pay. The IRS will send a bill for the remaining balance in about one or two months. At this time, call the agency and request a four-month extension. You’ll pay interest with an extension, but at least you’re given additional time to pay your taxes.
If you know that you’re not able to pay your taxes in full within 120 days, setup a payment plan with the IRS. This way, you can pay your debt over several years. Setup an installment plan for as little as $50 to $100.
Even though you can request a payment plan or request a payment extension, both options involve interest. However, if you have a 0% interest credit card, and you're certain that you can pay off any balance before your credit card interest rate kicks in, you can use this credit card to pay your IRS debt. Afterwards, pay off the card little by little each month.
It’s certainly cheaper to prepare and file your own tax return. But as someone who’s inexperienced with taxes, you could potentially miss deductions that might result in a bigger tax refund. Consider using a tax preparation service or an accountant to file your return. They’ll find every possible deduction available to you.
If you have a huge tax bill, now’s the time to cut back and make sacrifices. Paying your debt might require skipping your annual summer vacation or spring break trip, or forgoing other luxuries, such as shopping or buying high-ticket items. Reduce other expenditure and put all your extra cash in the bank. Stick with this method and you might pay off your debt within a few months.
Regardless of how much you owe, do not ignore the IRS. Your tax debt isn't going anywhere. It may take the agency months to realize that you haven't paid your bill, but they’ll catch up and find you. And if you don't pay the bill, you’ll face possible consequences, such as wage garnishments, levies and even jail.
Owing money to the IRS is stressful and frustrating, but don't panic. There are several ways to handle your tax debt. Remember - if you have to deal with the IRS, communication is important.
What tips can you offer those who owe money to the IRS?