I can’t afford to pay my taxes, what do I do??
So many agents that I speak with have at some point had a bit of trouble with the IRS. This typically comes up when you’ve got your first, really good year. Especially if you came from a world where you were an employee and got a W2 instead of having to save yourself. Learning to budget for your taxes, instead of it just happening automatically from a pay stub, is an adjustment. So what do you do when your first giant tax bill comes in, and you don’t have the cash to pay it? Here are my favorite 3 tips on the matter:
- File the tax return. We see lots of people who see the balance due, freak out, then never file. They take a “what they don’t know can’t hurt me” attitude. It can, I promise. You will eventually need to file the return, then you will be hit with heavy penalties and interest for not filing it and dealing with it when it was due. Unless you think the return is wrong (and in that case seek professional help), file it.
- Pay the tax. This could mean paying in full, albeit grumbling while doing so, filing an extension, and buying yourself 6 months of time to pay it without “officially” having any tax due on the book with the intent of paying it in full prior to the extended due date or setting up a payment plan with the IRS.
- Fix it going forward. Likely you will owe again the next year, so to stop the snowball effect, you need to start paying in quarterly during the year (you are in) so when you file the next year’s taxes, you are already paid in full.
I ALWAYS recommend to clients when they have a chunk of money set aside, and can either pay the tax due on the return (but be cleaned out) or do a payment plan and put that money towards the current year taxes (not filed yet) to do the latter. Too often we see them pay off the old tax, then they can’t pay the new tax, and it’s a struggle every year. Fix your mindset so that going forward you are current, pay off the old tax as soon as you can, and then you don’t have to freak during the year because you used all your savings up on last year’s tax bill.
This is an area I love to help with, so please reach out to me if you are in a bind and don’t know what to do. I would love to go through your options with you so you can make the best decision for yourself and your life!
