Did you just learn that you owe taxes to the IRS this year? Can you afford the tax penalty on the money you owe to the IRS?
Nothing can be more stressful than finding out you owe the IRS when calculating your taxes, especially when you already are struggling financially. The issue of course, is even though you can’t pay the tax, you still must file your tax return by the deadline. And, if you owe money, and you don’t have it, you will face a tax penalty. More people hate tax time because of this!
This video reviews some options you can employ if you are caught in this taxing situation of owing taxes to the IRS and facing a tax penalty.
Watch this video Do You Owe Taxes to the IRS.
What is the Penalty for Not Paying Taxes On Time?
The tax penalty for not paying taxes on time is steep – 1/2% (half a percent) per month. There is a maximum of 25% plus interest at the current rate. That adds up very quickly. The is true even if you have an extension to file later on this year. We strongly suggest that you find a way to pay the taxes you owe by the April due date.
Here are Some Possible Solutions to Pay Your Taxes On Time.
1) Obtain a short-term loan from a family member or close friend.
For the sake of keeping a healthy relationship with either, you should work out a payment plan up front, and follow through on your agreement. Make sure you keep it affordable to guarantee you follow through. With that said, take into consideration that you do not want to be in this predicament in the first place and you certainly don’t want to repeat this pattern. Therefore, we suggest you take into consideration a savings plan for the upcoming tax year, or increase your withholdings to the IRS so you break even.
2) Take out a home equity loan.
A home equity loan generally has the lowest interest rates and may provide just enough to cover your tax shortfall.
3) Pay with a Credit Card
While this is an option, borrowing against a credit card results in relatively high interest rates, usually in the double digits. Also, a convenience fee will apply.
4) Request an IRS Installment Agreement
This agreement with the IRS will include fees and interest. This intallment plan accumulates interest starting the day the tax return is due.
5) Tap into Your Pension Plan
This is an ABSOLUTE LAST RESORT! First of all, there is a 10% penalty when you withdraw against your pension. Next, when you take money against your pension plan, this money will become taxable income.
How Do I Break the Pattern of Owing Money to the IRS?
So as you can see, you don’t want to make a habit of these types of borrowing to pay your taxes. It could result in putting you deeper and deeper in a whole finacially. Ideally, you want to break even when it comes to your tax commitment. The flip side to underpaying taxes is over paying taxes.
What if I Over Paid My Taxes and Get a Refund From the IRS?
When you over pay on your taxes and you expect a refund, you are basically giving the IRS a tax free loan on your money. Some people like that big lump sum check coming to them. They can take that dream vacation, get that repair made on the house or have that down payment for a new car. Another option is to put that money in the bank or toward your retirement. Whatever you chose to do, remember that you could have put that money away weekly, biweekly or monthly by direct deposit into your personal bank or IRA account.
Do You Need Guidance on How to Meet Your Tax Liability?
If you would like our office to give you a second opinion regarding your tax returns, we offer that service. It could be that there was a mistake made on your original filing. Alex of Worthtax can review the tax form and discover what areas may have incorrectly posted. Give Alex Franch, BS EA a call at 781.849.7200 for details. Alex Franch is an enrolled agent with the IRS.
Have You Made An Appointment to File Your Taxes?
You are welcome to meet with someone from our tax team, or you may book your appointment online. Oh, and right now we have an incentive for you. Drop off or mail your taxes to one of our three locations in locations in Quincy, Weymouth and Dedham an you will save $35 on your tax preparation click here for details and other incentives. Please note some exclusions may apply.
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