If you have not filed your tax return yet for 2018, you may be in for surprise. According to the IRS, overall all tax refunds have dropped more than 8 percent during the first week of the tax filing season. Some of us are bad at saving and use tax refund to do things they normally cannot afford to do during the year.
Tax Cuts and Jobs Act
The new Tax Cuts and Jobs Act provides that employers are to withhold less in taxes throughout the year meaning you have more money in each paycheck but less is withheld and thus less will be coming back in the form of a refund.
The change in withholdings by the employer may have meant you should have changed your elections on your W-4 form. The W-4 form is where you tell your employer how much you want withheld from your pay for federal income taxes.
File Your Tax Return Early
A CNBC article yesterday by Shawn M. Carter offers some advice on what to do if you discover you owe. First, file the tax return early. You will know right away how much you owe and have until April 15, 2019 to pay it.
I talk with a lot of people who know they will owe, get scared and decide to not file. I do not recommend failing to file the return timely. I call it the “Put Your Head in the Sand” approach.
The IRS charges a penalty when you don’t timely file which makes your tax bill even more. If you do not have the money to pay the taxes, the IRS will also charge a penalty for failing the pay, but it is usually less than the failure to file penalty. Most importantly, there can be criminal implications for failing to file a return.
Get on an IRS Payment Plan
The second step if you owe is to get on a payment plan with the IRS. While on the payment plan, the IRS can still charge interest and penalties but they won’t garnish wages, place liens on property or levy bank accounts.
If you opt to do a long-term plan with the IRS, they will also charge application fees in addition to interest and penalties but they won’t be breathing down your back for their money. Another option is an offer in compromise where you make a lump sum offer to the IRS by paying less than you owe.
Lastly, the IRS will sometimes let you delay payments temporarily due to financial hardship, but they will often record a tax lien on real and personal property to protect the government’s interest.
Take Charge of Your Tax Withholdings
The third step suggested is to take charge. You need to investigate and figure out what tax bracket you are in and adjust your withholdings so that you are not in the same predicament next year.
Contact a Bankruptcy Attorney for Help Today
Some taxes are dischargeable in bankruptcy and a chapter 13 debt consolidation bankruptcy can offer a structured way to pay back the tax debt. If you have financial problems, please contact one of our locations for a free consultation.