It’s that time of year again when we hear terms such as W-2, 1099, and 1040. Tax season is here, and it’s about to go full tilt. Some will get a refund, but some will owe money to the IRS. Owing the IRS a significant sum of money could be a surprise. I had one of these surprises the year my wife switched jobs, and I didn’t notice that zero federal income tax was being deducted from her paychecks.
If you find yourself with an unexpected tax bill this year, and don’t have the ability to pay for it by the April 15th deadline, it’s important to know what actions you should take to resolve the situation.
File Your Taxes
First and foremost, file your taxes. Even if you owe the government a pile of money. If you don’t, failure to file penalties will begin to accumulate. Eventually you’ll have to face your debt and it’s going to be even worse than you ever thought it would be because of this secondary penalty that will increase every month.
A 120 day extension to pay can be requested. This gives you 120 days to pay your taxes in full. There are a couple of important facts to know if this option is pursued:
- You can pay in one lump sum, or in pieces as long as the IRS gets the full amount within 120 days
- There is no service fee for a 120 day extension
- The extension to pay can be requested via phone or online
- Interest and failure to pay penalties will be assessed
If the tax bill cannot be paid in full within 120 days, an installment plan can be setup with the IRS. Important facts to know about an IRS installment plan:
- There is a one time fee to setup the program
- Interest is assessed monthly on the unpaid balance
- There may also be failure to pay penalties assessed
Specifics for the fees and interest charged has purposefully been omitted as they may change over time. For further information, refer to the IRS website.
Change Your Withholdings
If you owe taxes to the IRS in an amount that requires special circumstances to pay, serious consideration should be given to changing your withholdings to have additional taxes taken out of your paychecks. Breaking your tax bill into smaller pieces allows for a day to day budget to be created for a lifestyle that fits within both your income and your tax responsibilities to the government.
Having a large tax bill can be a stressful situation. But by being educated about your options you can take action to eliminate your tax bill, and prevent another one in the future.
Have you ever owed a large amount of taxes at the end of the year? Did you utilize the 120 day extension or an installment plan?
Brought to you courtesy of Brock