April 15 is nearly upon us. Many people think of filling out their income taxes as, “refund time!” Others, however, find that, instead of a windfall, they owe Uncle Sam this year. Usually, owing taxes means that you’ve incurred a significant shift in your previous year’s income. Any refund you are due is the amount you overpaid during the previous year. Likewise, an amount owed indicates you hadn’t contributed enough in taxes and it’s time to settle up. It’s important to realize that when you owe taxes, you didn’t do anything wrong – it’s just that, for whatever reason, you didn’t contribute enough in taxes in relation to your ultimate income for the year.
If this is your first time owing rather than expecting a refund, don’t panic. Of course it’s more pleasant to discover you are owed money than that you owe but it just happens that way some years. You may feel overwhelmed – especially if the amount you owe is significant – but the IRS is not the scary beast you may have come to believe it is. It is a debt that needs to be taken seriously but the situation isn’t as dire as you may fear.
Should you find yourself owing more than you can pay right now, here are some strategies for dealing with the situation:
- File on time, even if you can’t pay your back taxes in full. By doing so, you’ll avoid the late filing penalty. Include payment for as much as you can afford – even if that amount is nothing. Do consider other options, like taking out a loan, paying by credit card or dipping into a savings account because financing your repayment is expensive through the federal government. In the event that you have no other resources upon which to draw, however, you do have that option.
- If you didn’t submit payment in full when you filed, the IRS will be send you a bill for the unpaid taxes, plus penalty and interest for the unpaid balance. Don’t panic, it’s just a bill – one that needs your immediate attention – but it’s just a bill. If, at that time, you still cannot pay the balance, contact the IRS right away to set up a payment plan! Their contact information will be on the bill.
- Don’t delay – call today! Demonstrate that you take the debt seriously and that you are committed to paying it in full. When you call the IRS, you’ll be directed to an advisor who can assist you in setting up a payment plan. He or she will verify the amount you owe and ask you to suggest a monthly installment amount that will fit within your budget. The advisor will let you know if that amount is acceptable; if it is, a fee will be charged to establish the payment plan, and the installments will be billed to you. You can even have the payments directly debited from your account.
- Failure to pay taxes due can result in a tax lien which can negatively impact your credit in a significant way. If working with IRS is beyond your comfort level, you can consult a tax accountant or attorney who specializes in working with the IRS.
The bottom line is, don’t let owing taxes frighten or upset you. It’s normal in the course of the ebb and flow of a financial life. It can be dealt with relatively easily, as long as you are willing to keep the lines of communication open between you and the IRS.
Are you getting a refund or do you owe taxes this year?
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