Not paying your taxes is not an option, and as Tax Filing Day, April 15, approaches, many Americans are beginning to sweat.
However, the District-based personal finance website WalletHub has highlighted a number of ways that those who owe the government can minimize unnecessary complications as well as buy themselves time to pay.
“Seek help immediately,” said Sarah B. D’Alessandro, a WalletHub expert and visiting assistant clinical professor and director of the Tax and Transactions Clinic at Albany Law School.
“Tax debt is one of the worst kinds of debt to carry and the IRS is a formidable creditor with lots of power,” D’Alessandro said. “Reassess your ability to pay. If you cannot, there are options such as payment plans, settling the debt and asking for a hold on collection activity.”
D’Alessandro added that eligibility for these options is dependent upon the facts and circumstances, so not all options will work for everyone.
“There is actually a lot of information on the IRS website,” she said.
Also, for those who lack the funds needed to pay an upcoming tax obligation, it’s important to know that payment arrangements can be made, said Goldburn P. Maynard Jr., a WalletHub expert and assistant professor of law in the Brandeis School of Law at the University of Louisville.
“This is much preferable than waiting for more draconian actions like wage garnishment,” Maynard said. “If you can foresee genuine cash flow concerns, make sure that your employer is withholding enough.”
Also, it may be worth it to overpay the government if you will not have the funds to cover an underpayment, Maynard said.
“If it’s too late and you cannot plan ahead, then negotiate with the IRS,” he said. “If no one is being responsive, then contact the National Taxpayer Advocate.”
WalletHub also offers the following universal tips:
• Don’t Try to Hide: You’re simply not going to slip through the cracks. And the IRS has proven far more willing to work with people who are straightforward about their inability to meet tax obligations. So submit your return by the April 15 deadline even if you don’t have the money to pay and open a dialogue with the IRS regarding your status.
• File a Return No Matter What: The IRS charges two different fees for failing to pay taxes and failing to file a tax return. At minimum, you want to avoid the latter if you can help it.
• Leverage Free Advice: You’re already on the right track by researching your options online, and we highly recommend that you continue. For example, many universities have free “tax clinics” staffed by third-year law students. Many experienced accountants and lawyers offer free consultations. And you can get free tax help from IRS-certified volunteers through nationwide programs such as VITA, TCE and AARP Tax Aide.
• Watch Out for Scams: There are plenty of businesses promising miracle fixes to even the most severe tax problems. Be intensely skeptical of these. Make sure to thoroughly research anyone you consider working with before enlisting their services. And remember, if an offer sounds too good to be true, it probably is.
• Reevaluate Withholdings: A large tax bill in April could mean that too little was subtracted from your gross pay during the year. In other words, you were getting a bigger paycheck from your employer in exchange for a higher tax bill when you file your return.
• To fix this, fill out a new Form W-4, opt for fewer allowances and submit it to your employer. Your paycheck will be smaller, but you’ll be far less likely to have a surprise tax bill, too. You may even get a refund.
• Improve Your Budgeting: Owing money to Uncle Sam underscores the importance of financial planning and a carefully constructed budget. So take this opportunity to cut your spending on everything but the necessities and keep close track of your performance. This will help you build positive habits for the future and repay the IRS as quickly as possible.