Now that the holidays are over and everyone is back to school and work, it’s time for the next big event of the year. Tax season!
Some people rush right in to see their accountants and get their taxes prepared right away. In fact, some of these people may actually be done with their income taxes already. Then there are those like me, who wait until the end of March, or even into April, just barely beating the deadline.
When it comes to income taxes, you will either end up owing taxes or receiving a refund. Being as close to zero as possible is best. If they owe, most people might have to pay in up to a couple hundred dollars. That’s not too bad. But, what if you receive a tax bill for a couple thousand or more? What do you do then?
Here are some ways ease the burden of a large tax bill.
If you do get hit with a large tax bill, just breathe. It’s ok to take a couple of minutes to panic. But then you need to start calming down so you can make a plan. You can and will get through this.
Double Check Your Return
If the amount you owe seems incredibly high and you haven’t had any major changes to cause it, such as a huge increase of salary, losing dependents, etc., there might have been an error in filing. If you did your taxes yourself, double check it. When you still can’t find anything wrong, it might be worth hiring a professional to check it too.
If you think your tax professional made a mistake, go talk to them. Get a second opinion if needed. This could be as easy as a typo and getting your numbers double checked is worth the extra expense if you can lower you tax bill.
File Your Return
When your taxes are prepared you will see how much you either owe or how much your tax refund for state and federal will be. Even if you owe a larger sum than expected, go ahead and file it with the IRS by the deadline. Waiting to file until you have the money will land you with penalties, as well as potentially giving you red flags for next year’s return.
Find a Way to Pay
Depending on the amount owed, this may be as simple of a solution as dipping into savings to pay the balance. If you don’t have an emergency fund or that much in savings this can be a problem.
Look at pulling from other accounts and investments if you can. Try not to pull from retirement accounts unless you absolutely must. Withdrawing funds from a retirement account can have negative tax implications for next year. Pay as much as you are able at the time of filing. Paying anything is better than paying nothing.
Work With the IRS for a Payment Plan
The IRS wants your money and will work with you to get it. If you can’t pay your entire tax bill, work with them to create a payment plan.
There is still a penalty for this, and you must make the monthly payments on time and in the full required amount. But it’s still better than not paying at all. Opting for a payment plan means the IRS can put a lien on your house or other property if you default on payments. You can also get an extension but this is only for filing, not for paying. Once filed, you must pay. The IRS will get your money one way or another.
Plan for Next Year
This year may hurt, but to avoid this happening again, you can prep for next year. Look at what deductions you take and what more you should be saving. Talk to your accountant before the end of the year to see what your taxes may look like. It’s better to be safe than sorry.
Though these steps may not seem like they would ease your stress, knowing what you are up against will help. Making a plan and knowing your options makes owing taxes less intimidating.
Have you ever had a large tax bill? How did you manage your large tax bill?
Photo courtesy of: stevepb