If you owe taxes when you file your return, stop and breathe. Then, make a plan.
key takeaways
- Paying taxes for a year does not mean that you have done anything wrong.
- If you owe more than expected, there are several ways to handle it.
- Filing on time and setting up a payment plan can help you avoid additional penalties.
“You owe a few thousand in taxes.”
My CPA – who had undoubtedly delivered the same news countless times in the past – sounded nervous on the other end of the call.
When I found out I owed money, my stomach dropped. This felt like a particularly harsh blow, considering I’d always gotten money back in the past. However, after a few deep breaths and a productive conversation with a CPA, I came up with a plan that worked for me.
If you owe tax money, here’s how to get it. The good news is that owing taxes doesn’t mean you’ve run out of options.
First: Find out why you owe debt
If you owe money in taxes this year, it usually means something changed in your income or your tax forms. Finding out what changes caused you to owe money can help you avoid a similar situation in the future. Here are some possible reasons:
- You earned money throughout the year on which you did not pay tax.
- You got a salary increase but you haven’t updated your tax deductions.
- A new employee in the family (such as a spouse who didn’t work before and now does) pushed you into a higher tax rate that you don’t account for.
- You claimed fewer deductions.
- You qualify for less credit.
- Your filing status has changed (for example, married filing jointly vs. married filing separately).
Next: Create a payment plan
Finding out that you owe taxes can be overwhelming. The good news is that you have options.
1. Pay it in full. If you have the money to do so (and it won’t completely deplete your emergency savings), paying off your tax debt in full immediately is the best way to put the issue aside and move forward.
2. Set up a payment plan. You’re not the first person to owe taxes, and there are payment plan options. If you can’t pay everything at once, the IRS offers payment plans – sometimes spreading payments out over several months or even years.
3. Pay off your loan for less. In some cases, the IRS may allow you to settle your tax debt for less than the full amount.
4. Stop collection. If you really can’t pay your taxes because doing so will prevent you from paying other essential bills, the IRS may temporarily stop collections. Keep in mind that this isn’t a get out of jail free card – your debt will eventually be paid off.
Finally: Take Action Before the Deadline
TurboTax professionals can help you sift through the different options to find which one is best for your individual needs. One thing that’s true for everyone: If you owe more in taxes this year than you expect, don’t procrastinate.
File Your Return with TurboTax And set up an IRS payment plan to avoid additional penalties and fees.