You found out you owe taxes; what now?

If you end up with an unexpected tax debt, you have options that can save you anxiety and money in the long term.

You’ve finally collected all of your W2s and receipts and handed them over to your accountant, tax preparer, or sat down at the pc to file your tax return yourself – but when you’ve said and done every little thing, you find out that as a substitute of a refund, you actually owe tax! What are you doing?

If you have not hit the “send” button on this report yet, you is likely to be considering that you can put it off until later and even wait until next 12 months to take care of it. But as we advised earlier, you should do that; it is going to actually cost you extra money.

Here’s what to do if you owe Uncle Sam this 12 months:

File your tax return by April 15, even when you cannot repay your debt on April 15

According to the tax office, you should still file your tax return by the fifteenth and pay what you can by that deadline. If you don’t file on time or don’t pay anything in your debt, interest and penalties can add up quickly.

IRS Failure to submit a penalty is 5% of unpaid taxes for every month or a part of a month that your tax return is late. The penalty won’t exceed 25% of your unpaid taxes, but it is going to be added to your balance every month, which might add as much as lots of money. Conclusion? Failure to file your tax return on time is rarely helpful. I see? Good.

Set up a payment plan with the IRS

If your budget doesn’t allow you to repay your complete debt upfront, you can go browsing and apply for payment plan from the IRS. There are two options for paying down your tax debt. You could also be eligible to use online if you meet the next criteria:

• Long-term payment plan (installment agreement): You owe $50,000 or less in combined taxes, penalties and interest. You have submitted all required declarations.
• Short-term payment plan: You owe lower than $100,000 in combined taxes, penalties and interest.

If you are approved for a payment plan, there is no such thing as a setup fee for the short-term payment plan. If you would love to establish a long-term payment plan, there may be a $31 setup fee.

As a financial expert, that is what I counsel anyone who’s behind on their taxes to do: Apply for a payment plan, get approved, and begin paying it off immediately. Make monthly payments a part of your budget and deal with them.

DO NOT ignore this

I am unable to emphasize this enough: ignore this tax bill. Having an IRS tax is not fun, but you cannot just act prefer it doesn’t exist. Not only will interest and penalties accrue, however the IRS can place a lien in your property or garnish your wages. It’s best to be proactive and plan for repayment.

No one wants one other bill, especially not on this economy, and an unexpected tax bill can really catch you off guard. However, this will be a brief problem if you reap the benefits of the resources available to you fairly than panic or procrastinate. If you make a plan quickly and keep on with it, it might be over before you understand it!

Jennifer Streaks is a senior personal finance reporter and spokeswoman for Business Insider and a financial specialist at The Grio. A nationally recognized expert on money and reasonably priced lifestyles, Jennifer is a renowned financial columnist whose columns have appeared on CNBC, Forbes, ABC, MSNBC, CBS and more.

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