Every year between January and April there is always a buzz in the air about tax refunds. Many Americans look forward to them and plan a portion of their lives around this refund. It’s almost like a Christmas present to pay for the Christmas presents you bought last year.
What happens if you don’t get a refund? Wealthy people usually don’t. What happens if you owe every year? Wealthy people usually do. And more importantly, what if you haven’t been saving for this April 15th Christmas present that you owe the IRS? (April 17th this year).
The first thing to remember is, don’t try to sweep your tax payment under the rug because there is not a rug big enough to hide it from the IRS. This could turn out to be an expensive mistake. There will be penalties, interest and if you owe in the future you are just making it harder to pay your future tax bills.
There are some steps you should take whether you have the money to pay or not. First, you really need to know what you owe in order to make a decision on how to pay it. You can file your taxes and once you have that figure you can then request to pay in installments. Use IRS Form 9465 – Installment Agreement Request to apply for an installment deal. (Ask your accountant for help.) Don’t wait and try to come up with the money first before you ask for an Installment Agreement because the amount will continue to rise. Penalties and interest will add up every month you are late.
Your second option is to file for an automatic extension until October 15th. This will give you the option to defer filing your previous year tax return until later in the year. This may give you time to pull together all the documents you need as well as the money. However, there is one catch. Just because you file for an extension doesn’t mean you do not have to estimate your tax liability or that you won’t accrue interest and penalties.
If you take action you can save money and the headache of a possible audit. Please read form 4868 for all the details on filing an extension, interest and penalties. This post is just to give you a general idea of what is to come. Do your own personal research to confirm your situation. Call or email me and I can help or refer to you to someone who can assist you.
If you do nothing you run the risk of getting hit with a penalty and interest payment. Why pay more when all it takes is a trip to your financial professional’s office to get a one page form if you are filing an extension or you could do it online at irs.gov. Look at it this way; if you had a traditional job taxes would have been taken out of your check every month. When you are self-employed you control when your takes are taken. So use your power wisely.
In the past I have charged a portion of it on my American Express and paid it off the next month. I am not suggesting you pay more interest than the IRS is going to charge you. I am suggesting that if you know you have more money coming in soon a credit card may help you stretch your time frame. Especially if the current interest rate on your credit card is lower than the fees the IRS will charge you.
There are a few ways you can pay your tax bill. As mentioned earlier you can ask for an installment agreement. You can also pay estimated taxes throughout the year so when you do file your taxes you will have a lower tax bill or maybe even a refund depending on your situation. If you file an extension you can also file for an installment agreement if you still don’t have the money.
It takes a little extra planning and saving but it’s your money so you should have a plan for managing it anyway. Paying taxes is part of money management. There is no way to get out of paying taxes but nobody wants to pay more than their fair share. Wealthy people have financial advisors and accountants to insure they never do. So make sure you are getting all the deductions, credits and write-offs that you deserve. And stay ahead of the deadlines. Get a team of financial professionals on your side so you can file your taxes like the wealthy.
Getting a refund can feel good but keep in mind that means you gave the IRS a loan all year and they didn’t pay you interest. If you think about it you could have kept that money for yourself and done something productive with it. Either way, be responsible with your refund and with your money over all. Save, Invest and Enjoy your money.
Meeting deadlines…Now That’s Presidential!