Your tax bill is higher and your refund is smaller this time. What do you do?
That’s a dilemma many people are going to have to deal with, and if you’re one of them, there are certain steps you can take to make it a little less painful. Putting it off isn’t going to help. It won’t go away, and you could even be facing some stiff penalties if you let it slide, so you’re just adding to the unpleasantness.
The first thing you should do is double-check your math. It’s easy enough to make a mistake or miss a deduction you’re allowed to take, especially if you’re tired or stressed. It wouldn’t be a bad idea to have your spouse go over your return as well. Bringing a fresh set of eyes to it may help spot the mistakes.
But if your work is sound and you really do owe an amount equal to the GDP of a small nation, there are a few steps you can — and should — take. Contact the IRS and tell them you’re having trouble coming up with the money to cover your tax bill. Believe it or not, they’re willing to work with you as long as you’re sincere about finding a solution. You’ll definitely want to do something proactive before your account is sent to collections.
You may be able to seek relief under the IRS Hardship Program. This is for people who would have to endure unfair financial hardship after the taxes are collected. But you’ll want to be declared as “currently not collectible” while you’re sorting things out. This prevents the IRS from garnishing your wages or even seizing your property in lieu of payment. But be advised you’ll have to prove this will result in hardship and not just mild financial discomfort.
The likelihood is, you’ll have to enter a payment plan, which isn’t as awful as it sounds. As long as you owe under $50,000, you can go online and select a monthly amount and a reasonable time frame in which to pay it. You’ll still be facing some interest and penalties, but at least you’re whittling down the amount you owe and decreasing the chances of garnishment or asset seizure. It’s also possible to negotiate a settlement for less than what you owe.
It’s always a good idea to do your taxes as early as possible, so you’ll know in plenty of time if you’ll need to work something out with the IRS. The sooner you take steps to settle matters, the less stress. What isn’t a good idea is taking out a loan or — even worse — a credit card cash advance to cover your tax liability. You could end up with no savings and even more debt.
However you choose to handle it, don’t bury your head in the sand and hope it’s going to take care of itself. It isn’t. Talk to the IRS, set up one of the plans outlined above (or see if there are other alternatives), and start planning for next year.