10 Smart Ways to Tackle Large Tax Bills and Avoid IRS Penalties
Staff Editor Tax Season Strategies: Managing Large Tax Bills
As the April 15 federal tax deadline approaches, many Americans are grappling with the prospect of a hefty tax bill. For those unprepared to pay in full, several options exist to manage their tax obligations effectively.
Financial experts emphasize the importance of early tax preparation, whether working with an accountant or utilizing tax software. This proactive approach allows individuals to anticipate their tax situation and plan accordingly.
For taxpayers facing a substantial bill, the first step is to assess available savings. Mark Steber, Chief Tax Information Officer at Jackson Hewitt, advises, “Look at all your savings accounts, including CDs and money-market accounts. Consider temporarily using funds earmarked for other goals, with a plan to replenish them from future income.”
The Internal Revenue Service (IRS) offers payment plans for those unable to pay in full. Short-term plans, available for amounts under $100,000, allow payments over 180 days. Long-term plans extend up to six years for amounts under $50,000. In cases of financial hardship, an offer in compromise may be negotiated.
Alternative financing options include personal loans or home equity lines of credit. While credit cards are generally discouraged due to high interest rates, those with 0% APR offers might consider this route. However, experts caution against borrowing from 401(k) accounts due to potential long-term financial impacts.
Filing for a tax extension is another strategy, providing additional time to plan and budget. However, it’s crucial to understand that an extension grants more time to file, not to pay, and may result in penalties and interest on unpaid balances.
As tax season progresses, taxpayers are encouraged to explore these options and seek professional advice to navigate their specific financial situations effectively.
