5 things to avoid if you owe money to the IRS…The questions are, do you owe money to the IRS? Many people dread tax season. While a sizable return is a cause for celebration, owing money to the IRS is never fun—especially when you haven’t budgeted for a high bill. Unfortunately, avoiding the debt won’t make it go away, and the IRS can be intimidating when it comes to getting paid. Here are some things to avoid so you don’t make your situation worse.
Here are 5 things to avoid if you owe money to the IRS
1 of 5 things to avoid if you owe money the IRS
1. NOT FILING A TAX RETURN
If you have a feeling you will owe money you can’t pay, it can be tempting not to file your taxes. However, when you don’t file your return on time, the IRS automatically adds a 5% failure to file penalty for each month you continue to owe taxes, up to a maximum of 25%. You will also have to pay interest on your bill until it’s paid in full.
2 of 5 things to avoid if you owe money the IRS
2. NOT FILING AN EXTENSION
An extension to file will give you an additional six months to complete your return. Be sure to file your extension request before the April tax due date so you aren’t charged a failure-to-file penalty fee, although you will still owe on any outstanding taxes which equals 0.5% of the balance. The good news is that this penalty caps off at 25%.
3 of 5 things to avoid if you owe money the IRS
3. HOPING THE IRS WILL FORGET ABOUT YOU
You can’t ignore the IRS and hope the problem will go away. In addition to penalty fees and interest, the IRS can cause you a lot of grief by canceling your passport, garnishing your wages, or placing a lien against your property. Know what’s at stake and take the IRS seriously.
4 of 5 things to avoid if you owe money the IRS
4. NOT SETTING UP A PAYMENT PLAN
The IRS offers payment installment plans to make things easier if you owe taxes and don’t have enough money saved to cover the amount. They also give eligible taxpayers up to 72 months to pay their debt in full, although interest and penalties will continue to add up in the meantime.
If you owe the IRS less than $50,000, you may be eligible for an online payment plan. If you owe more than this, you’ll need to fill out Form 9465 and send it to your local IRS office to find out what kind of plan you qualify for. If you end up being owed a refund in any subsequent tax years while on a payment plan, the IRS can apply it against your total debt.
5 of 5 things to avoid if you owe money the IRS
5. NOT PAYING IN A WAY THAT’S BEST FOR YOUR FINANCES
When you’re struggling financially, it’s tempting to consider a loan to pay off your debt or use a credit card. However, this is something you have to research, taking the time to compare interest rates, fees and repayment terms for each option, so you’ll know precisely what borrowing to pay your taxes is going to cost you in the long run.
Paying taxes is never pleasant, especially when you didn’t expect to get hit hard with a bill. But facing up to it instead of avoiding the IRS is the best approach if you want to prevent more problems for yourself.