For most of individuals, tax time is probably as hectic as any family
gathering or holiday. You rush around trying to make sure that you have all of
your receipts, and that you have received everything you need to actually file
the tax return. Even after all of this has been dealt with, there is still one
problem that can arise. That problem is being told that you owe the IRS money.
Well, in reality, the problem doesn’t simply come from owing the IRS money,
it comes when you owe more than you can really afford. Especially for
individuals who do a lot of freelance or contract work where tax are not
withheld, it can be a very scary thing to think that you cannot pay your bill
to the IRS. This is when the real panic sets in.
The purpose of this article is to explain what you should do when you owe
the IRS more than you can easily afford to pay. In addition, it explains the
process that most people will experience, and the forms that need to be filled
out. Finally, it also explains the dire consequences that can come from
ignoring the IRS.
The Bad News
Now, when you find out that you owe money to the IRS, your first instinct is
to panic. This is certainly made worse if you do your taxes on your own. At
least with a tax professional in front of you, they can give you advice and
help to at least calm the panic.
Well, if you are doing your taxes, the first thing to do is to ask how much
you afford to pay at once. The more that you actually pay, the better of you
will be. The reason for this is that any outstanding balance that you owe to
the IRS that cannot be mailed in on April 15th will incur interest and
penalties.
It does not matter if you tell the IRS on April 15th, you still face a
penalty. The reason for this is that the IRS wants you to insure that you are
paying enough taxes throughout the year to prevent this kind of dilemma. Even
if you are paid mainly from freelance and contract work where you receive a
1099, they still want you to plan ahead and prevent this problem.
When you owe the IRS money, they view it as a loan. However, unlike a loan
that you might get from a bank or on your credit card, the loan that the IRS
gives is not at the best rate. In fact, the interest and penalties that you
incur from owing taxes comes to about 17%. This is why you are advised to pay
as much as you can up front.