As sure as death and taxes
“As sure as death and taxes”- so the old adage goes. Paying taxes isn’t easy, but the alternative – being in the IRS’s bad books – is no walk in the park either. So what should you do when you find yourself in a situation where you are genuinely unable to pay up your debt to the taxman?
A “Can’t pay, won’t pay” attitude simply will not do. The worst thing you can do is do nothing. Cheer up though; this article is designed to help you better manage your tax blues from a number of options you probably did not know you had. From settling part of your tax bill, to using your credit card, there are many ways to be on the winning side when dealing with the taxman. By the time you are through reading this piece you should be better informed on what steps to take to avoid Uncle Sam’s wrath.
Avoiding penalties is the key
For a start, file your tax returns in time and pay up as much as you can. Timely payment helps reduce interest charges as well as penalties accrued from late payment. Failure to file any tax return at all incurs an interest of almost 5% from April going forward. On the other hand, filing without paying the full amount owed attracts a penalty of half a percentage point interest until the balance is settled. So which would you rather be? That said, postponing payment can only get you so far, moreover it is only effective for a tax bill less than USD 25,000. If your taxes are paid late, you may be jeopardizing future tax benefits you could have had, such as the 401(k) plan, if you live in America.
Being proactive by asking for a payment plan can save you a lot of time and heartache. You may also wish to consider filing Form 9465 (Installment Agreement Request) with your tax return, which gives you up to 60 months to repay. You may even set up an agreement with your bank to directly debit your account, which means you don’t have to mail a check to the IRS each month. This way you avoid missing payments and the resulting penalties. Remember that the IRS has modernized its payment methods to include electronic payment options- on this score tax payment is now easier than it has ever been.
Borrow if you have to
Taking out a loan or using your credit card to pay taxes is another option. Yes, it’s not the most conventional method of doing things- but it can go a long way towards resolving your tax obligations. You can also borrow against your deferred wages- 401(k) – as most plans allow for a loan of up to half of your balance. However, this should be a measure of last resort as it comes with its own repercussions.
Stocks, bond funds, and certificates of deposit
If you have stocks, bonds, certificate of deposit or any other security instruments you can liquidate them as a quick way of raising cash; even a fire sale from your garage isn’t such a crazy idea when it comes to sorting your tax issues. However, don’t go about acquiring stocks thinking you’ll manage to hit the “stock jackpot” and pay off your taxes though that lucky investment. Stock investing at this point won’t be a great idea, nor would getting a certificate of deposit, or bonds… Only use what you already have!
Use your assets
If you own assets then the best way to go is an installment agreement; possessing assets without commensurate income will only encourage the IRS to file a lien – a public notice in court stating that you owe money to the IRS – which can damage your credit rating and make accessing loans more difficult. At any rate, if you try to sell your property, you will need to settle your tax debt first before accessing the sale proceeds. Your employer can also be compelled to deduct tax payments from your monthly paycheck or contractual payment through a levy, or even your bank accounts and assets frozen to repay outstanding taxes.
Do not ignore the taxman
Whatever you do, if you get a bill, don’t disregard it. Get in touch with the IRS right away and go over your payment options together. The IRS is always willing to find a workable solution if you fall into financial hardship.
Sourced from: Time
Featured Image: PixabayPosted on May 5, 2023