What to Do When You Cannot Pay Your Tax Bill in Full
If you’ve just prepared your taxes and have discovered you owe the IRS money, don’t panic. The first thing you need to do is file your taxes on time. If you are unable to pay the entire bill, you should immediately contact the IRS, or work with your tax preparer to determine if an installment plan is a viable alternative. The installment plan does cost money, so there may be other options that could work better.
What to avoid
For most taxpayers, there are a couple of things that should be avoided if you owe the IRS money and are uncertain about how to pay off the debt. Do not take out a high interest loan, like a payday loan, unless you can pay it back in one pay cycle. Avoid taking money from your retirement account as well — you may find the penalty for taking these funds far outweigh what you would otherwise owe. It may also not be a good move to pay an IRS debt with a credit card. Review the interest rate on your credit card, weigh it carefully against what you would have to pay for a payment plan with the IRS.
Steps to take
If you have never owed taxes before, you should make sure that you take specific steps before cutting a check and sending it to the IRS.
- Review your tax return – The first thing you should do if you’ve prepared your taxes is make sure the return is accurate. Compare the return to last years, in some cases, you may have miscalculated, or missed out on deductions you were entitled to claim. You may wish to have a tax preparer review your return, sometimes a second set of eyes is best. However, if you still owe money, you need to take immediate action.
- Check with your employer – If you are a W2 employee, you may want to consider changing your withholding, so you do not face another tax bill next year. This may mean smaller paychecks throughout the year, but you will not have to worry about having another bill due next year.
- Plan of action – Whether you decide to take on a second job temporarily, sell household items, or borrow money from family, you need to develop a plan of action to address the amount you owe to the IRS. Make sure you check into the various options offered by the IRS including paying through the installment plan. Keep in mind, if you do not make arrangements for payment, the IRS could garnish your wages, or put a lien on your property.
Ignoring the fact you owe money to the IRS won’t make it go away so you need to have a plan of action. If you live in the Mechanicsville area, contact Rue & Associates, Inc. for help. We can review your tax return for errors, help you work out a plan to repay your tax debt, and help negotiate with the IRS if necessary. Owing taxes isn’t the end of the world but you can find yourself in a lot more trouble if you ignore the problem.