Every year the tax season comes and the taxpaying population goes to a war on foot in order to get tax refunds and file taxes. Facing a Federal Tax bill is quite common than one might think. In fact, according to a study on IRS tax data for the year 2012-2016, it shows at a hefty 17% of taxpayers are slapped with a tax bill with an average outstanding of $5,294. The situation is not going to improve as per the study was done by GoBankingRates, a leading personal finance website. According to their website, in 2017, about 70% of the taxpayers will be eligible for tax refunds. What that necessarily means is that the rest 30% will have to deal with the federal tax bills. To make things worse, this trend will be prevalent in 2018 as well.
It is imperative to say that the state taxes too will add as an added burden to the taxpayers. If someone finds themselves with a tax bill, it needs attention and action right away. The most important predicament will be the adverse effect on the credit score if someone fails to pay the tax bill - you definitely don’t want to mess with your credit score. Apart from that non-payment. interest and penalties are bound to add to the burden as well. In some rare but extreme cases, criminal prosecution can also be slapped onto the defaulter.
Here is how you can make this difficult situation better even if you are struggling to pay the tax bill as offered by the IRS.
Atleast File Your Taxes
The wise decision for the taxpayers is to at least file for their taxes if they are tax eligible. If someone is unable to pay after filing, the failure-to-pay-penalty is activated. If someone does not file tax, IRS adds a penalty of 5% of the total owed every month and can shoot up to 25% of the total owed.
The scenario is different if someone files taxes. A must lower 0.5% penalty is levied on the total owed every month until paid. It is impervious to say that this is the wisest route to take.
Make Partial Payments
It might be hard for someone to make full payment of their tax bill at one go. In these scenarios, the full-payment agreement can be reached where one can make partial payments monthly to pay the tax bill in full. This agreement can be reached if the taxpayer plans to pay the tax bill within a 120 days’ time frame. There are no application fees as such, but penalties will still be accrued.
Similar to above, one can also take installment-agreement if the payment time period is more than 120 days. Application charges apply in these situations. This route helps people to plan their escape from the tax bill in a most systematic manner.
In rare cases, one can opt for “offer in compromise” route where one has to pay a lower amount than owed. Eligibility for this is though strictly monitored by the IRS and not everyone can take this route. The IRS also employs the option of temporarily delay collection if someone is not able to pay currently. A federal tax lien against payer’s property might be levied in this case.
Be Proactive In Paying
One can always ask the IRS to take their tax and financial condition into consideration but is always wise to be proactive in this situation. The sooner one can make an arrangement with the IRS, the lower the penalties and charges for late payment. The best bet is to consult a tax professional and move forward with a solution that will suit the taxpayer and IRS both. This is the best bet to avoid a tax bill. Also, it gives the taxpayer a better way to plan for their payment terms and make sure that they don’t crop up in the defaulters list.
To have adjustments on income coming from a side hustle are quite common and has a feasible way out too. Since freelance income cannot be ascertained in advance the best bet will be to “pay-as-you-go”. Filing for tax online is also a good way to cut the clutter and the taxation done.
