When it comes to filing taxes, you’re usually hoping to see a refund coming back from Uncle Sam. Unfortunately, that’s not always what the numbers show. At this time especially, due to the recent changes in tax law, you may be surprised at filing time to discover you owe money to the IRS. Whether you anticipated it or not, coughing up some of your hard-earned money to pay the government is never fun, but it can also be a financial challenge.
As tempting as it may be to stick your head in the sand (every year Americans fail to pay somewhere around $458 billion in taxes), that will only make your situation worse leading to collection calls, wage garnishment, or even jail time.
Take a deep breath and then follow these steps to get through this year's tax season and better prepare for next year.
1. File on Time
First things first: get your taxes filed on time. It’s easy to get so focused on the payment that you forget about the filing deadline, but filing late will only make things worse! Filing an extension will avoid the late filing penalty (5% of the payment owed each month) but you’ll still get hit with late payment penalty (0.5%). On top of that, your unpaid taxes start accumulating interest charges the day after taxes are due.
Filing late, even with an extension, will cost you. Your best bet is to file on time. We’ll talk strategies for paying on time in a minute, but first …
2. Adjust Your Withholding
Owing money on your tax return is the result of not enough taxes being withheld from your paychecks. Increasing your withholding will ensure the right amount is being taken out of each paycheck. This will put you in a better position come tax time next year. The IRS provides a withholding calculator to help you figure out exactly how much you should ask to have withheld from your earnings. In some cases, it could be beneficial for you to speak with your Payroll Specialist, HR, or a Tax Specialist for accuracy in selecting withholding.
3. Decide How You'll Pay
If you can’t afford to pay the full amount you owe out of pocket, you have two main options: set up an installment plan through the IRS or take out a loan. Both options break up the big amount you owe into smaller monthly payments.
IRS Payment Plan
An installment agreement will facilitate smaller more manageable amounts, typically the same amount per month, for some time, until your debt is fulfilled. The IRS has a few installment agreement options, each with different application fees on top of the interest rate they charge. Plus, even with an IRS payment plan, you’ll be hit with late payment penalties.
The IRS calls it a payment plan, but it’s structured like a loan; a loan that has penalties and set-up fees even when you make the monthly payments on time.
So, if the installment plan is basically a loan, why not just get a personal loan from your credit union? That will allow you to both file AND pay on time, avoiding all the penalties and fees you’d get with an installment plan from the IRS. A personal loan puts you in control.
A GOLD Personal Loan is customized for your needs and offers low rates, flexible terms, and fixed monthly payments.
Ready to take the next step with a GOLD Personal Loan? Apply online or give our lending team a call today—484-223-4216.
About Janet Weinhofer
Jan is the VP of Lending at GOLD. She directs and coordinates all lending activities within the credit union, ensuring compliance with lending policies. She ensures her team provides friendly, professional, timely, and personal service to all our Members. Jan is proud to be part of GOLD’s mission to empower our Members to achieve personal financial success.
Better Borrowing - January 20, 2020
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