Taxpayers should be aware of what’s to come in regards to their taxes. No one wants to pay an unexpected tax bill. After all, everyone knows dreaded taxes are among the most notorious. The best way for taxpayers to avoid unexpected tax bills is to be aware of possible tax bills and to take appropriate action.
For those who need additional help in understanding unanticipated taxes, a tax professional such as an accountant or tax specialist may be the best option.
Additionally, there are also many tax software programs available that may be less expensive than a tax specialist. If the taxpayer can understand and use a tax program, they can prepare themselves for what’s to come.
While being aware of risk factors for unexpected debt is optional, it may not have been done this go-round. Instead, taxpayers may find themselves in a financial bind facing unexpected tax bills that they did not foresee. In this situation, it’s time for the taxpayer to take appropriate action.
If the taxpayer is plagued already with unexpected tax debt, he or she should examine the following options that can help them pay for the taxes that they were not expecting. Any action is better than no action. The following action steps may greatly help.
1. Take Action Immediately when You Receive an Unexpected Tax Bill: File and Pay any Unpaid Taxes Right Away
The best way to handle unpaid tax paid is to file and pay it. Taxpayers should get these two things done as soon as possible. If the tax debt is too much to pay, the taxpayer should consider getting the old credit cards out and using them or even taking out a personal loan if they have the credit to do so.
It’s advisable to pay as much of the entire bill as possible. However, whether they can file and pay or not the most important thing is to take action and contact the IRS. Let them know about the situation.
2. Tell the IRS What Happened: Communication with the IRS is Crucial when Dealing with an Unexpected Tax Bill
If the full amount cannot be paid all of the sudden or if the tax return cannot be filed for whatever reason, the taxpayer needs to talk to the IRS and let them know what is going on. Asking for leniency is the best approach.
The IRS offers payment extensions or payment plans for those who are facing an unexpected tax bill. Communication is the key to handling and resolving the situation in the best way possible.
3. Check out IRS Assistance Programs: There is Hope for Those Dealing with an Unexpected Tax Bill
For those who still cannot pay, there are free programs that the IRS offers. Some of the free programs offered are VITA (Volunteer Income Tax Assistance) or TCE (Tax Counseling for the Elderly). Other assistance programs include:
• The IRS Penalty Abatement Program: This program allows taxpayers to remove some of the penalties and other fees that they may have accrued from having tax debt.
• The IRS does allow 120 days for the taxpayers to pay the full amount they owe. If they cannot pay this, they may qualify for the Installment Agreement.
• The IRS Installment Agreement: This agreement works with taxpayers to pay late taxes over time instead of all at once. This can take care of a lot of headaches. Late fees can cause much stress. For those who did not file taxes quarterly and do not pay their estimated taxes, more fees may pile up. However, the tax account transcript can be used to confirm estimated tax payments were applied correctly.
• The IRS Offer in Compromise Agreement: This agreement is the closest anyone can come to debt forgiveness from the IRS. It is not usually advisable, because it is not easy to qualify for; most people will not be eligible.
• The “Currently Not Collectible” Status: This can help those who cannot afford to pay any of the taxes due. The IRS puts them into a “not collectible” status until they can earn enough to pay a portion of what they owe. It will take help to eliminate endless collection phone calls and letters.
4. Other Available Options When Faced with an Unexpected Tax Bill: Looking for Help Outside of the IRS
After exhausting all of the above options, the taxpayer may still wish to look for other sources of money to pay the IRS. Some taxpayers may want to do obvious options like asking friends or family for personal loans or donations. Taxpayers may have the option of a home equity line of credit that they can use.
For those with a full-time job, employee benefits may be the answer. Taxpayers may wish to ask for a low-interest rate, penalty-free 401K loan that can be repaid by deducting funds from the employee’s paychecks.
Employment can be a great deal of help depending on the company. For example, company shares may be cashed out. Asking for a short-term bonus or incentive is not out of the question either.
Employees should always keep their W-4 form up to date so that they can reduce the possibility of an unexpected tax bill next year. This is a simple step that is very easy to take; it will eliminate future headaches.