4 Things You Need To Know Before Paying Your Tax Bill
Many Americans dread doing their taxes — especially if they know they will end up owing the IRS.
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If you are one of those taxpayers who owed money this year, read on to find out everything you need to know before paying your tax bill.
Be Aware of the Deadline To Pay
Though the original deadline for taxes was April 15, some taxpayers have filed an extension. The deadline to pay with an extension is Oct. 15, 2024.
“Many people who owe taxes they can’t afford to pay put off filing or avoid filing altogether. Unfortunately, this isn’t a great strategy,” said Richard Lavina, co-founder and CEO at Tickmark, Inc. “The sooner you file, the better chance you have of avoiding, or at least reducing, IRS penalties.”
The IRS charges penalties for failure-to-file as well as for failure-to-pay, and these penalties increase the later you are to file or pay.
“If you do not file, you can be penalized up to 25% of the amount that you owe,” said Morris Armstrong, founder and owner at Morris Armstrong EA LLC. “Simply filing the return or an extension, and then filing by the due date removes that penalty.”
This means that you should file on time, even if you can’t pay your taxes by the due date.
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Know Your Options If You Can’t Pay the Full Amount You Owe
You may not be able to pay all of the taxes you owe at once, but don’t panic — the IRS does offer payment options.
“There are payment options available for most taxpayers, especially if someone owes less than $50,000 and they don’t owe any other back taxes,” said Arnold van Dyk, Esq., director of tax services at TaxAudit.
The IRS offers both short-term and long-term repayment plans. If you can afford to pay the amount you owe within 180 days, you won’t be charged a set up fee. However, interest and penalties will accrue until the full amount is paid. You can pay this electronically or by calling 1-800-829-1040.
If you need more than 180 days, you might qualify for a monthly payment plan. To request a payment plan, you can visit irs.gov to get the appropriate forms to fill out and send in, or use the number listed above to contact the IRS directly. A payment plan allows you to make monthly payments over time. The IRS offers various options for making monthly payments:
Direct debit from your bank account,
Payroll deduction from your employer,
Payment by EFTPS,
Payment by credit card via phone or internet,
Payment via check or money order,
Payment with cash at a retail partner.
If you owe back taxes, van Dyke recommends seeking help from a tax professional who specializes in tax debt issues.
“They can help set up an affordable payment plan, perhaps get penalties removed if there are any, and request an appeals review of the case,” he said.
You might also consider seeking a professional if you really cannot pay the taxes you owe.
“If you’re dealing with a financial hardship and there’s no way you can afford payments, you might be able to qualify for an Offer-in-Compromise (OIC) status,” Lavina said. “An OIC settles your tax debt for less than you owe. However, it’s tough to qualify for, and you really need a professional’s help to apply.”
Think Twice Before Paying Taxes With a Credit Card
Ideally, you will pay any taxes you owe with cash. You might be tempted to pay your taxes with a credit card, but this could end up costing you more in the long-run.
“You can pay your taxes with a credit card, but you will pay interest on the amount you charge which, in some cases, will be higher than the interest charged by the IRS,” van Dyke said.
Using a credit card to pay your tax bill can also come with some additional downsides.
“IRS-approved payment processors charge an extra fee for paying taxes with a credit card,” said Michael Benninger, banking writer at Finder.com. “Paying your taxes with plastic could also hurt your credit score depending on your overall credit utilization.”
If You Believe You Don’t Actually Owe the IRS, Dispute the Assessment
Sometimes taxes aren’t so cut and dry. If you believe your tax assessment incorrectly states that you owe taxes, you have some options.
“There are procedural options available for taxpayers to dispute proposed IRS assessments, and in certain cases, even after the IRS assesses a tax liability,” van Dyke said. “These options can include filing a petition with tax court or disputing the case through filing a request for a collection due process hearing if you have not had a previous opportunity to dispute your issue. An audit reconsideration may also be an option. Make sure you are working with a qualified tax professional who specializes in tax debt issues.”
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This article originally appeared on GOBankingRates.com: 4 Things You Need To Know Before Paying Your Tax Bill