Tips

You Owe. Now What?

Tax season is over, but for some that’s the beginning of a new process: that of preparing for payments for tax due to Federal and state agencies. So what now? See below for the next four steps you should take to get a handle on it.

1. FILE ANYWAY.

The IRS imposes penalties for both late filing AND late payment. You can avoid one of these by filing your tax return on time.

2. FIGURE OUT HOW MUCH YOU CAN PAY TODAY

Since penalties on late payments are assessed based on the amount remaining due, you can decrease the amount of interest you'll pay on the unpaid amount by sending something towards your bill. Remember, even if you choose to file an extension, any taxes owed are still due on the filing deadline. Therefore if you don’t pay by the deadline, you are subject to those extra penalties and fees.

3. GET ON A PAYMENT PLAN

If you are not able to pay the amount due in full by the tax deadline, the IRS offers methods by which to pay over a period of time.

• You may qualify for extra time to pay your taxes if you can pay in full in 120 days or less. You can apply online at IRS.gov. There is usually no setup fee for a short-term extension.

• If you owe $50,000 or less and need more time to pay, you can apply for an Online Payment Agreement on IRS.gov. A direct debit payment plan is your best option. This plan is the lower-cost, hassle-free way to pay. The set-up fee is less than other plans. There are no reminders, no missed payments and no checks to write and mail. You can also use Form 9465, Installment Agreement Request, to apply.

4. REASSESS

Now is the perfect time to review your withholdings and estimated tax amounts. Are you on track to be in a similar income situation next year? You may want to update how taxes are withheld from your paycheck, or if you’re self-employed, how much you send to the IRS throughout the year so that you aren’t in for a surprise next April. Take advantage of the IRS paycheck checkup tool to be proactive about your tax planning before it’s time to file.

DISCLAIMER: I am an accountant, not your accountant. Please speak with a professional about your specific accounting and tax needs before putting any of the aforementioned tips into practice.

File Your Taxes Early! Three Reasons Why

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We are fully in the throes of tax season, but time after time, I hear clients tell me how they generally wait until the last minute to file. Even though many taxpayers file their tax returns on or about April 15, you don’t have to.  In fact, filing an early tax return makes sense for a variety of reasons:

FASTER REFUNDS

The normal wait for a federal tax refund is less than 21 calendar days from when the IRS accepts your return. Filing sooner means a faster refund because the IRS won’t be as busy early in tax season as it will be in April. You could also potentially receive your state refund faster.  State refunds vary by state, but you normally must file your federal return first.  When you file electronically, the IRS's system acknowledges receipt of your state tax return and passes it to the state for processing. If you have money coming to you there’s no reason letting the government keep it longer than necessary and puts the money in your hands sooner.

FRAUD PROTECTION

The IRS recommends filing your taxes as early as possible as a security measure.  Tax return receipt and processing is a first come-first serve process. In the event a thief gets hold of your social security number and files a false tax return to claim your refund, having that corrected can take months. This is especially important when dealing with children, for which fraud occurs frequently because of the benefits of claiming dependents.

PEACE OF MIND

When you file early, you avoid procrastination by giving yourself peace of mind from being able to check this off things-to-do list.  Filing early also gives you time to fully understand changes to tax law or deal with changes in your life that alter your filing status.  Rushing at the last minute can lead to mistakes that trigger audits, potentially leading to penalties and interest. In addition, if you find that you owe for Federal or state tax due, you give yourself time to pay since payment isn’t due until tax deadline. This gives you more time to plan how you will pay, or set up a payment arrangement as needed.