Nobody likes the feeling of owing money, especially when it’s to the government. But let’s face it. Taxes are a necessary part of life. Unfortunately, many of us find ourselves in the uncomfortable position of owing taxes come tax season. Whether you’re a seasoned taxpayer or a first-timer, owing taxes can be a stressful experience. But don’t worry. It’s not the end of the world. In this article, we’ll walk you through what you must do if you end up owing taxes and share some tips to help you avoid this situation in the future.
What to Do If You Owe Taxes
If you owe taxes, you must first file your tax return as soon as possible. Failing to file your tax return in a timely manner can result in significant penalties and interest charges, which can add up quickly. If you can’t really afford to pay the entire amount that you owe, you should still file your tax return and pay as much as you can. This’ll help you avoid additional penalties and interest charges.
Once you’ve filed your tax return, you should contact the IRS to arrange a payment plan. The IRS offers multiple payment options, including installment agreements, which allow you to make monthly payments over time. Remember that interest and penalties will continue to accrue until the full balance is paid off, so paying as much as you can monthly is essential.
If you’re unable to pay your taxes due to financial hardship, you might be eligible for an offer in compromise. An offer in compromise is an agreement between you and the IRS allowing you to settle your tax debt for less than the whole amount owed. This option is only available in particular circumstances, so speaking with a tax professional is critical to determine if you qualify.
How to Avoid Owing Taxes in the Future
While owing taxes can be a stressful experience, you can take many steps to avoid this situation in the future. Here are some tips to help you stay on top of your taxes:
- Adjust Your Withholding: If you receive a large tax refund each year, it may be a sign you have too much money withheld from your paycheck. You can adjust your withholding by submitting a new W-4 form to your employer.
- Keep Track of Your Expenses: Keeping track of your expenses throughout the year can help you identify deductions and credits that can lower your tax bill. Consider using tax preparation software or working with a tax professional to ensure you’re taking advantage of all available deductions.
- Make Estimated Tax Payments: If you’re self-employed or have other sources of income that aren’t subject to withholding, you may need to make estimated tax payments throughout the year. Failure to do so can result in hefty penalties and interest charges.
- Stay Organized: Keeping your tax records organized throughout the year can help you avoid errors and ensure that you are filing accurate returns. Consider using a filing system or tax preparation software to keep track of your documents.
Owing taxes can be a stressful experience, but it’s crucial to remember that there are steps you can take to resolve the tax issue and avoid it in the future. If you owe taxes, be sure to file your tax return on time and contact the IRS to arrange a payment plan. To avoid owing taxes in the future, consider adjusting your withholding, keeping track of your expenses, making estimated tax payments, and staying organized. With the right approach, you can stay on top of your taxes and avoid any surprises come tax season.
Avoid accidentally owing taxes with the help of Abacus Tax & Books. We are a trusted and reputable accounting firm based in Fort Mill that provides tax preparation for individual taxes. Our team will work with each client to review their financial records and determine the most suitable strategy for maximizing their tax returns or minimizing their tax burden. Get in touch with us today!