Most taxpayers will generate a refund, upon filing their taxes. However, some will not, and will instead owe an amount to the IRS. Below are several tips to ensure you are choosing the best method to pay for taxes owed.
1. Pay your tax bill – Once a taxpayer receives a bill from the IRS, it is best to pay the amount in full or as much as you can, right away. Paying in full or a portion will save you money in the long run. It also will reduce the amount of interest and penalties that can be assessed for late payments. It may be beneficial to consider paying the balance using a credit card or obtaining a loan for the owed amount.
2. Use IRS Direct Pay – The most efficient way to pay your taxes is with the IRS Direct Pay tool. It is a safe, easy, and free tool that will guide you through the payment process in 5 simple steps. This tool can be found on the IRS website, under Payments.
3. Get a short term extension to pay – If you are able to pay the full balance owed with 120 days or less, you may qualify for a short term extension. Generally, there is no set-up fee for a short-term extension, however penalties and interest fees will still apply.
4. Apply for a monthly payment plan – Alternatively, if you owe $50,000 or less (Individual) and require additional time to pay, applying for an Online Payment Agreement may be a solution. The agreement will entail a monthly direct debit payment plan; this is a lower-cost, hassle-free way to pay.
5. Consider an Offer to Compromise – If you can not pay your tax in full, due to financial hardship, an Offer to Compromise is also a potential option. This will allow you to settle your tax debt for less than the amount you owe. You can complete the “OIC Pre-Qualifier Tool” to determine if you pre-qualify, and what a reasonable offer might be for you.
6. Extension of time to pay – Qualifying individuals may request an extension of time to pay and have late payment penalties and interest waived as part of the IRS Fresh Start initiative. Simply contact the IRS for more details.
7. Change your withholding or estimate tax – Having more taxes withheld from your pay is an option to prevent owing taxes in future years. This is done by filing a new Form W-4, Employee’s Withholding Allowance Certificate, with your employer. The IRS also provides a Withholding Calculator that will assist you in filling out a new form. For those that may have income not subject to withholding tax, you may need to consider making estimated tax payments.
If you have any questions or need any additional information regarding tax payments, please do not hesitate to contact us.