When it comes to taxes, no one likes surprises. No one likes the idea of shelling out cash for yet another bill. Recent changes to tax laws and withholding schedules may mean that you will owe more in taxes than in previous years, or for the very first time. Here are some quick tips to help you navigate paying your first tax bill.
Pay on time, pay what you can
While paying the full amount may mean sacrificing your rent or other major monthly expense, paying what you can will demonstrate good faith to the IRS while keeping your pockets full for that rent or house payment.
Make payment arrangements for the rest through the IRS website.
Alternatively, you can put the payment on a credit card if the interest rate is lower than the penalties and interest charged by the IRS. Read the fine print carefully, as some credit cards may increase their rate for late payments or other missteps.
Deciding whether or not to break out the credit card requires sizing up your overall financial picture, as accounting for the payment in your monthly budget.
Dip into savings
While tapping into your vacation or car repair fund to pay a tax bill isn’t what you had in mind, you’ll avoid IRS penalties and late fees on your tax bill. You’ll also avoid interest charges.
If you have a 401K through your employer, you can secure a low-interest loan to cover the tax bill. The loan is gradually repaid through payroll deductions.
Set up an IRS installment plan
In some cases, you can request to set up an installment plan with the IRS. It is crucial that you make the payments as promised, or you’ll face hefty fines and penalties.
The IRS has made applying for a payment plan easier: you can apply by phone, online, or through a hard copy form sent by snail mail.
Set Up An Offer In Compromise
An Offer in Compromise allows you to repay your taxes under new terms negotiated with the IRS. Like an installment plan, it is crucial that you make your payments as agreed, and make them on time.
If you fail to make a payment on time, you run the risk of the IRS assessing additional penalties and interest. In addition, the paperwork for requesting an Offer In Compromise can be confusing for a first-time taxpayer: one wrong move on the form or one required field left blank can mean starting from scratch after a long wait for approval.
Failing to pay a tax bill can have dire consequences, including tax levies, penalties, and having next year’s refund applied to your outstanding tax balance.
Tax Pros And The IRS
If this is your first time encountering a tax bill, hiring a licensed tax pro is key to avoiding snafus in completing IRS forms and in dealing with the IRS. Your tax pro will negotiate on your behalf with the IRS, and they will wade through the red tape and jargon on your behalf.
If you’re facing a tax bill and don’t know where to start, we can help. We’ll work with you to create a payment plan or Offer In Compromise that you can live with. We’ll tackle the paperwork on your behalf and negotiate with the IRS.
While we deal with the IRS, you can get back to dealing with what matters most to you. Contact us today to get started.