The title says it all: tax day has arrived and you owe money this year. What do you do? Can you get by without paying it? Maybe they just won’t notice. Keep in mind that the Internal Revenue Service has the same documents that you received. With such a large workforce, the IRS probably knows the amount owed before you do. Why pay the money? Because the IRS has many tax collection powers – they can place a lien on your property and/or garnish wages.
We see clearly that paying the taxes is the only feasible option, so how can that happen? Lump sum by April 15th would be nice, and it may be possible if the amount is only a couple hundred dollars. Maybe the amount owed is $2,000 and you don’t have that kind of money lying around. According to IRS Topic 202, you can set up an installment agreement. This will cost a $120 fee for the standard plan or $52 for direct debit. You get to choose the monthly amount paid and the day you will pay it. Of course, the IRS may refuse the proposed plan. If you believe that the amount owed can be saved over the next six months, you may choose to file an extension. In that case, you would file form 4868 and start planning how to save the necessary amount during that time.
Since we have a plan for repayment of this year’s tax bill, let’s do some tax planning to make sure that it does not happen next year. Consult with your employer’s HR department to reduce the number of deductions or have additional money taken out. There is an even better option – open up an IRA and regularly contribute to it. This is still an option to affect the previous tax year if paid by April 15th. Let’s look at the previously mentioned tax bill of $2,000. If you have this amount in hand, put it into a traditional IRA. This will reduce your tax burden and may even negate the amount owed, considering many other factors.
We have seen options for paying current taxes and reducing the tax burden for the next year. With proper preparation, you can live in peace with the IRS. Take some time and expand on these concepts and ideas so that you can enjoy tax time for the upcoming year.