Did you just do your taxes and find out you owe way more than you expected? Don't panic. There are several ways you can work to bring that hefty tax bill down.
Step 1: Check for Errors
First, go through your return and make sure you didn't make a mistake. If you used tax software, it checks the math based on what you entered but doesn't know if you entered the right numbers. Common errors include entering a number wrong, adding an extra zero, or entering the same income in two different places.
The best place to start when looking for errors is to go line by line comparing this year's return to last year's return. Of course, some of the numbers will be slightly different, but the differences should match your raise, reduction in hours, or other life changes. If anything doesn't match up, take a closer look.
Step 2: Max Out Your Traditional IRA Contributions
If you have money in the bank and just don't want to give it to the IRS, upping your retirement savings could be a solution. Don't forget that you can still open and contribute to an IRA up until your filing deadline plus extensions. The deduction you receive will reduce what you owe.
Step 3: Check for Other Deductions and Credits
Go back and look for any other deductions and credits you might have missed. For those military members that are residents of states without income tax, make sure you include your BAH, BAS and other allowances when calculating your Sales Tax deduction. For those who just retired from the military, don't forget to deduct personal property taxes on your vehicles, if you pay them.
If you used tax software, the questions are sometimes confusing or buried, so you might have accidentally skipped over a deduction or credit. The best thing to do is research if there are either for any large expenses you had throughout the year that you think might possibly come with tax incentives.
Step 4: File Your Tax Return Anyway
Even if you think you can't pay, file your return. There are separate and larger penalties for failing to file a return. This includes automatic monetary penalties for late filing as well as the possibility of the IRS thinking you were trying to evade taxes because you couldn't pay what you owe. Failing to file can affect your military career
Step 5: Pay Your Bill
Bottom Line: It is better to owe Visa or MasterCard than the IRS. If you can't pay with cash, use your credit card.
If you can't pay your full bill with your credit card, pay what you can. Late payment penalties are based on your outstanding balance, not your original tax bill. Just like paying off a loan, the more and earlier you pay, the less you pay in interest and penalties.
If all else fails, you can request an Installment Agreement from the IRS. This is a payment plan where you make monthly payments with slightly lower penalties than if you just didn't pay. The other advantage is that if you make your payments on time, the IRS won't keep sending you threatening letters or file a tax lien.
Need help figuring out how to pay this year's taxes or how to reduce your future taxes? Talk to your financial advisor today.
This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.