There are many ways of triggering a surprise tax bill – whether it’s income from your side hustle or investment gains. So what’s the best way to deal with surprise tax bills?
For starters, try not to give in to panic. Instead, work on an action plan to tackle the surprise tax bill at the earliest to avoid penalties and interest. Here are a few steps you can follow to deal with a surprise tax bill.
Pay What You Can
If you are unable to pay your tax bill in full when filing your return, set up a payment plan with the IRS. Although you may have to pay a small fee to set the payment plan and be subject to interest, it can help you avoid any penalties associated with missed deadlines. Make sure to keep proof of the payment and explore any payment options that are available to you.
File for an Extension
If your financial circumstances are difficult, it might be a good idea to request for a payment extension. To qualify for the extension, the IRS will first determine if your business is truly unable to pay off its tax liability. Before granting the extension, the IRS will ask you to provide proof of your financial status, including income, assets, and debts.
The IRS can give you up to six months to pay your due balance if you can demonstrate ‘undue financial hardship.’ Note that undue hardship means more than just a simple inconvenience. You have to show that paying the taxes will result in a significant financial loss if you were forced to pay them on the due date.
Get an Installment Agreement from the IRS
If you can demonstrate that you can’t pay the entire bill on the due date, you can file for a payment plan with the IRS. Note that you will still pay interest on your balance each month until your balance is paid. The good news is that you should be able to avoid hefty penalties associated with missed deadlines.
Note that there is a small fee for setting up an installment plan that ranges anywhere from $30 to $200 or more.
Create a Monthly Budget
Creating a monthly budget can go a long way in helping you pay your tax debt. Make sure to stick to the monthly budget to ensure you don’t exhaust the funds that were set aside for the tax bill.
Wrapping Up
Remember, the sooner you can put the surprise tax bill behind you, the better.
If you’re worried about getting hit with a surprise tax bill, consider hiring a professional accountant to help you come up with a financial plan. A tax planning consultant in Bay Area will help you manage your money more effectively and lower your chances of getting a surprise bill. Let our experts do your personal tax filing in Bay Area for you from start to finish. Click here for more information about surprise tax bills and how to deal with them.