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Have you finished your taxes yet? If you’re like many Americans, you will procrastinate as long as you can—especially if you suspect that you will owe the IRS.
Calculating your taxes as early as possible doesn’t mean you have to file before the deadline, but it does give you time to prepare for the results. If you find yourself owing taxes and are not sure how you will pay, consider the following advice.
Start saving. Look for simple ways to reduce your daily expenses. For example, by brown bagging your lunch, you may be able to save as much as $100 a week. This would enable you to save hundreds before the big day.
File on time. The penalty for not filing on time is generally 5 percent of the balance due per month. The IRS recommends filing your taxes even if you are unable to pay. If you truly can’t get it done by April 17, file an extension.
Pay on time. The interest charged on late payments is determined every three months. During the last several years the interest rate has ranged from a high of 9 percent to a low of 4 percent.
Get Help. There are many institutions – including the government – who will loan you the money for a price. To request a payment plan, complete Form 9465, Installment Agreement Request, and attach it to the front of your income tax return. If your obligations don’t end with the IRS, seek help from the nonprofit Money Management International.
Don’t compound the problem. If you are tempted to pay your taxes with a credit card, consider the true cost of
credit. The last thing you want to do is roll your tax bill into a revolving credit card balance that you will be paying on this time next year.
Change your W-4. Be proactive to avoid being hit with the same surprise next year. Contact your company’s personnel department to reduce the number of deductions you claim or have extra money withheld.
To make filing your taxes easier, consider using the Electronic Federal Tax Payment System (EFTPS). The EFTPS enables tax preparers, businesses and individuals to pay federal taxes electronically using a variety of payment methods.
The folks at Money Management International exist to educate and inform consumers about their financial choices. We are not accountants, and cannot answer tax-related questions. For tax information, visit www.irs.gov.
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