What happens when you realize that you owe a great deal more in taxes than you anticipated? This can happen for a variety of reasons, and it's not always related to financial irresponsibility. Taxes can be difficult to project in advance and there are many financial decisions you could make -- such as selling a home or even moving across state -- that can affect your tax bill.
File Your Taxes On Time
You don't need to pay your taxes in order to file your taxes. In fact, you have to file your taxes, regardless of what you are able to pay. If you can't file your taxes by April 15th, at least try to file your taxes by May 15th. The penalties related to late filing are calculated by month -- if you file within a month of the due date, you may be safe. Every subsequent month will result in additional penalties, so even if you are late you still have a vested interest in filing your taxes as soon as you can.
Request a Payment Plan
The Internal Revenue Service is usually more than open to creating a payment plan. Usually, the payment plan will be aimed at getting your debt paid off within five years through monthly payments. The sooner you get this payment plan in place, the fewer fines and penalties you will need to pay off. The payment plan will still involve interest payments, but the amount of interest charged is usually fairly low.
Apply for Quarterly Payments Next Year
If you currently have a complicated tax situation -- such as being self-employed -- you may want to switch to quarterly tax filings and tax payments next year. This will ensure that you don't fall behind on your tax payments again. If you're experiencing a one-time tax issue -- such as the sale of a home -- this may not be necessary. While quarterly payments will still add up to the same amount of taxes paid every year, many people find it easier to manage.
Be upfront with your accounting firm throughout your tax preparation services. They can help you arrange a payment plan with the Internal Revenue Service and can advise you regarding your anticipated payment schedule. Contacting the Internal Revenue Service as soon as possible is best. In general, communications with the IRS should be done through certified letter or email, rather than through the phone or fax. To learn more, contact Herman & Cormany.