If you’ve ever worked as an independent contractor, freelancer, or claimed income from side projects, you know all too well how important it is to set aside taxes on your own. Generally, independent contractors will save 30% of their income as a safe, round number to expect to pay at tax time (which may be quarterly.) Sometimes taxes owed can still throw you for a loop. Whatever your circumstances are, it’s an alarming and intimidating situation to find yourself in.
Don’t let nightmares of MC Hammer or jail time rob you of sanity. You’re probably in a lot less trouble than you think, and it’s time to face the music.
First – Don’t File Late
There are penalties involved with failure to pay all of the tax you owe on time. However, if you file taxes late and cannot pay, you run the risk of incurring exponentially more penalties against you. Instead of digging yourself into a deeper and deeper financial hole (at a rate of 5% per month) go ahead and file your taxes. You might even find that the IRS are willing to work with you more when you file on time and communicate openly with them, instead of hesitating to face your financial problem.
Don’t Put It On the Card
Whatever payment you can make now, the IRS won’t refuse. How should you go about making that payment, and why is this even an issue? If your interest rate is high, paying your taxes via credit is a bit counter-intuitive. You might be escaping tax penalties now, but setting yourself up for higher charges to your credit line down the line. In fact, paying taxes on plastic might be the worst way to pay taxes. Break out those old personal checks or pay by debit.
Figure Out How Much You Can Pay
Even though you’re not currently in a position to make a significant dent in the money you owe, it might be more feasible for you to make monthly payments. The IRS is certainly willing to set up payment plans; in fact, payment plans are the most common course of action among taxpayers who can’t pay what they owe.
Brace Yourself For Penalties
If you’re recovering from a recent financial emergency or if your budget is so tight that you would not be able to support yourself on a payment plan of any kind, you can sometimes request a delay. It might not be wise to request a delay if you have no foreseeable way to repay your debt in the next couple of years. As with any time you make the IRS wait for money it’s owed, you will incur even more penalties. You will need to prepare for this in your personal financial planning.
Sometimes the IRS puts people through the wringer, but you’d be surprised how understanding they can be when people are willing to work with them. Remember to be diligent in saving for taxes next year and soon you’ll be in the clear – and you’ll have the IRS out of your hair.
Guest author Malia Anderson is a southern freelance writer and content specialist. In her spare time, she enjoys researching finance and playing the ukelele.