Do You Lack The Cash To Pay Federal Taxes?
If you have ever completed your taxes and realized that you owe a lot more money than you thought you would, and even more money than you have on hand, you probably started to panic. After all, you know you need to send in money owed when you file your taxes, and you know that tax day is coming up quick!
However, you certainly are not the first person who has ever had this problem. Of course, in a perfect world, we would all arrive at tax day with our taxes fully paid up. Employees would have the amount deducted from their paychecks all year. Self employed people would have made estimated payments every quarter that would pay the full amount. That's in a perfect world.
Some Reasons People Owe More Taxes Than They Estimated
Sometimes we do something unusual with our finances during the year. For example, unemployed people may owe taxes on unemployment benefits. It is difficult to save money for taxes when you have to rely on these benefits because you lost your job. A child may have outgrown qualifying for a credit. For example, the child tax credit is only for kids under 18. If you have an 18 year old, who is still in high school, this may not occur to you until you sit down with your tax program.As a home mortgage gets paid off, the percentage of the payment that is deductible (the interest) gets lower. In the final years, it can drop off very quickly.Other times, tax rules change so we cannot take advantage of a credit or deduction that used to keep our bill lower.
These are mistakes, but they do not make you a criminal. Before you panic, please consider some very reasonable ways to get back on track. The IRS deals with lots of people who cannot pay their whole tax bill on time, and they even have their own payment program set up to handle it.
Please note that I do not present myself as a tax professional, CPA, or employee of the IRS. Before you make a final choice, you can consult with one of these tax experts. I am just trying to give you some reasonable alternative ways to handle big tax bills you cannot afford right now.
File your tax return or an extension by the deadline. You may have to pay a penalty if you do not pay on time, but you will be in bigger trouble if you neglect filing or, at least, letting the IRS know you intend to file. The worst decision that you can make is to ignore this problem and hope it evaporates on its own. It may take several months to a few years, but it will catch up with you.If you file an extension, you still have a responsiblity to pay on time. The IRS suggests that you pay what you can and then take advantage of their payment program. The interest rate and penalties on the portion you cannot pay are still fairly modest. Visit IRS.gov to find all the forms you need. You can also find contact information so you can call them for more help.
You do not have to use the IRS payment program if some other type of credit will work out better for you.
Some people charge the balance on a credit card. However, these days, most credit cards charge higher interest than the federal government does anyway. Some argue that they can take advantage of points or frequent flyer miles if they use a credit card. Other people just do not like handing out their banking information to the IRS, though I'm pretty sure they can find it out if they want to anyway!
Just be sure you understand the pros and cons of any decision you make. You will not be the first person to find that your bank balance is a little short when you need to pay your taxes. You can handle this problem in a prudent manner and get back on track.
Visit the Frugal Pig for more online financial tips so you can enjoy the frugal life without being a total cheapskate! Also learn about some more steps you can take if you think you may have to file your taxes late!
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