Tax season is over, and that means you can breathe a sigh of relief, right? That’s not exactly the case if you’re one of the more than eight million Americans who currently owe money in back taxes.
Whether you’ve known for a while that you owe back taxes or you just found out that you owe more than you can afford to pay, you’re probably feeling a little stressed out.
The good news, though, is that you do have options to get out of debt.
Read on for some tax, financial, and debt relief advice that can help you get out of tax debt as soon as possible.
Don’t Bury Your Head in the Sand
The first step to take when dealing with tax debt is to acknowledge that you’ve made a mistake and that there’s an issue.
Don’t bury your head in the sand and pretend you don’t owe money — the IRS definitely isn’t going to forget about it.
The sooner you own up to the problem and recognize that you have tax debt, the sooner you can start addressing and correcting things.
You might be wondering whether you qualify for IRS tax debt relief. You might, but it’s unlikely. It’s pretty rare for the IRS to forgive debts altogether.
If you’ve lost your job recently or had another issue occur that is impacting your ability to pay your debts, you might qualify for forgiveness.
If that’s not the case, though, you better come up with a plan to pay your bill.
Know When to Hire a Professional
If you owe less than $10,000 to the IRS, it’s a good idea to try and figure out a way to pay the debt yourself.
The IRS has a variety of payment options available (more on that in a minute) that will allow you to pay off your debt and avoid any serious consequences.
If you owe more than $10,000, you may want to hire a tax attorney. A tax attorney will be able to help you negotiate with the IRS.
An attorney won’t eliminate the need for you to pay your debts, but they can negotiate and get you better payment terms. They might be able to negotiate down the amount of money that you owe, too.
Understand Your Payment Options
When it comes to paying the debt you owe, there are a few different strategies you can implement. The following are some of the most popular options:
Pay What You Can
Paying something to the IRS is better than paying nothing at all. A partial payment shows that you take your responsibility seriously and are planning to repay the debt. It can help you avoid penalties and interest charges later on, too.
Use Alternate Funds
If you own your home, you may want to consider using a home equity loan or home equity line of credit to pay your debt, too. If you have a high credit score, you might also want to consider taking out a personal loan.
Apply for an Extension
If you know that you’ll be able to pay your debts within 120 days or less after the filing deadline, you can apply for a short-term extension. There’s no fee for these, and you’ll qualify if you owe less than $100,000.
Set Up a Payment Plan
The IRS also allows you to set up a payment plan directly with them. If you owe less than $50,000, this can be a good option. There is a small setup fee, though.
How to Avoid Tax Debt
There are plenty of steps you can take to deal with tax debt. There are also lots of things you can do to avoid tax debt in the future.
Remember, it’s always easier to prevent problems than it is to deal with them after they’ve already happened.
Listed below are some strategies that you can implement to avoid future tax debts:
Withhold Taxes from 401(k) Withdrawals
If you withdraw money from your 401(k), remember that you have to pay taxes on that money. Set aside a portion of the money you withdraw (learn your tax bracket to figure out how much) so that you’re prepared when tax season rolls around.
Pay Quarterly Taxes for Business Income
If you’re self-employed or a freelancer, be sure to set aside money for your taxes every time you get paid. Then, make quarterly payments to the IRS. This will help you avoid penalties, and it will keep you from being stuck with a huge bill during tax season.
File Your Taxes on Time Every Year
This might seem obvious, but you’d be surprised at the number of people who simply don’t file their taxes. One of the easiest ways to avoid debt is to make sure you’re filing them on time every year.
Report Stock Sales
Remember that you need to report stock sales on your tax return. If you profit from the sale of a stock, you’ll need to pay taxes on that money. The IRS will tax you automatically, so make sure you have the money set aside to pay them.
Hire a Financial Advisor
Last, but certainly not least, consider hiring a financial advisor to help you deal with your finances and avoid tax debt in the future.
A financial advisor will also provide you with guidance to ensure you’re investing your money wisely and making it work for you, so they’re a good person to have on your side no matter what.
Need More Tax, Financial, and Debt Relief Advice?
Nobody wants to be faced with tax debt. The truth of the matter, though, is that lots of people have to deal with it every year.
Luckily, there are also lots of steps you can take to get out of tax debt as quickly as possible.
Keep these tips in mind and you’ll have a much easier time dealing with your tax debt and avoiding it in the future.
Are you looking for more tax, financial, and debt relief advice? Do you want to work with a tax relief professional? If so, we’ve got lots of resources available on our site.
Check out the Tax Debt Relief section of our site today for all kinds of helpful articles.