Know how you can handle unexpected Tax Bills
If you owe money around tax time, keep in mind that rainy-day reserves are designed to cover such unforeseen bills. Don’t worry if you don’t have the funds to pay what you owe on time. The steps below will assist you in making the procedure as simple as possible.
Here are the Seven Reasons For Unexpectedly High US Tax Bills
(1) Submit your paperwork on time and pay what you can
To assist in the reduction of penalties and interest fees:
Make sure you submit your return on time.
Attempt to pay off as much of the bill as feasible.
Check to see whether one of your credit cards has a lower annual percentage rate than the IRS’s combined interest and penalty rate on your outstanding debt.
If that’s the case, make the whole payment to the IRS with your credit card account to save money and avoid further tax payments.
(2) Make a payment extension request
Request a payment extension if you’re facing serious financial difficulties. If you were obliged to pay the full amount of your tax bill on the due date, the IRS may offer you a six-month grace period, but you must show that you suffered a significant financial loss—such as having to sell the property at a sacrifice price—to qualify.
(3) Make a payment schedule
Establish a payment plan with the IRS if you are unable to pay your debt in full when you file your return. There is a modest setup cost, and you will be charged interest, but a payment plan can help you avoid the additional penalties that come with missing deadlines.
(4) Take use of your employer’s perks
Your employer’s perks may be able to assist you in paying your taxes. In addition to 401(k) match advantages, many firms provide their employees with stock options. You may be vested in business shares that may be paid out instantly if you’ve been at your work for numerous years.
You won’t be penalized for using these, but they will be considered taxable income.
Push for a signing bonus or a short-term incentive bonus to pay your tax burden while negotiating the conditions of new employment.
(5) Borrow money from family, friends, or your 401(k)]
Consider borrowing money from a friend or family if you don’t have any savings or investments to sell. If you need to borrow money from a family member, make a documented payback plan. You can also take out a low-interest, penalty-free 401(k) loan, which you pay back by having money deducted from your paychecks.
(6) Get a home equity loan or a home equity line of credit
If you were lucky enough to buy your house during a buyers’ market, you may have a significant amount of equity in your home. When taking up a line of credit, make sure you only borrow the amount necessary to pay your tax obligation, since you want to keep your monthly payments and principal debt as low as possible.
(7) Keep your W-4 up to date
Fill out a new Form W-4 at your payroll department. This information is used by your employer to deduct taxes from your pay.
If you owe the IRS more taxes at the end of the year, the amounts taken from your paycheck were insufficient—and most likely still are.
To figure out how much should be withheld from your future paychecks, utilize the IRS Tax Withholding Estimator.
Updating your W-4 might help you avoid an unexpected tax payment the following year.