Finding the cash to pay a larger-than-expected tax bill can be tricky, but tax pros say there are ways to deal with the surprise without having to pawn the family heirlooms.
1. Take a deep breath. Though crimes such as tax fraud or evasion certainly can come with jail time, the
“They're going to send you a bill. I mean, it's as simple as that,” he says. That bill will include interest and probably late-payment penalties , Portera warns. The
2. Still file your tax return on time. “That way, you're not going to be subject to failure-to-file penalties — because they are significantly higher than the failure-to-pay penalties,” warns
If you're not done preparing your return, get a filing extension by
3. Pay what you can right away. Because the
“If you can pay down more now, that means less interest and penalties as you scrounge together the rest of the money to cover the bill,” Kibler says.
4. Look into a payment plan with the
If you can pay your tax bill within 120 days, a full payment agreement might come in handy. It won't turn back the clock on interest or late-payment penalties, but there's no fee to set up the plan.
If you need more than 120 days and owe less than
If you owe more than
Set up a plan that leaves you with some financial breathing room in case life gets in the way and you need cash for emergencies, says
5. Think twice about borrowing or raiding your 401(k). It might be tempting to pay a tax bill with a credit card so that it's done (and so you can get frequent-flier miles or other rewards), but the card's interest rate may be higher than what you'd pay under an
Raiding retirement accounts can trigger early withdrawal penalties , Hurwitz adds. Drawing on a home equity line of credit does buy time, and the interest can be tax-deductible , but getting a HELOC usually isn't free. Plus, it can create a temptation to overspend and run up the balance, Portera notes.
6. Make sure it doesn't happen again. For many people, avoiding a surprise tax bill can be as simple as adjusting their W-4 form , which they give to their employers instructing them on how much income tax to withhold from their paychecks. Increasing the amount withheld can help set aside more tax money for next year — “so you're not in the hole,” Portera says.
This article was provided to The Associated Press by the personal finance website