By EMMET PIERCE
Each year, millions of Americans end up paying tax bills. Los Angeles County-based Certified Public Accountant (CPA) Bob Wheeler says that while TV commercials for tax preparers might make it seem like everyone will get money back from the government, that's far from the case. He's found that many of the people he works with end up owing taxes.
Mark Steber, chief tax officer at the Jackson Hewitt tax preparation firm, noted that in 2014, out of nearly 150 million individual federal tax forms that were filed in the U.S., 40 million filers received a tax bill from Uncle Sam.
Wheeler says that the chief reason people end up with a tax bill is they don't have enough money withheld from their paychecks by their employer. This may boost the size of your paychecks, but it can also result in a bill at the end of the year. You can reduce the likelihood of this happening by accurately filling out your Form W-4, also known as the Employee's Withholding Allowance Certificate.
People could also end up owing large tax bills because of procrastination, Wheeler says. The longer you wait to pay your taxes, the more interest and penalties you may have to pay.
Tips for paying off a large tax bill
If you end up owing more than you can pay right away, you may be able to stretch out your payments over time. Here are three tips for paying your tax debt.
1. Request a short-term extension.
According to the IRS, it may be possible to get an extension if you can pay off your debt within 120 days. You can avoid long telephone waits, visits to an IRS office and filing paperwork if you apply for an online payment plan, Steber says. To qualify to apply for an online payment agreement, you must file all required tax returns and owe no more than $50,000 in combined taxes, penalties and interest. You can learn more by calling the IRS at 800-829-1040. Typically, there isn't a fee for a short-term extension.
2. Request a monthly payment plan.
You can request a monthly payment plan from the IRS if you owe $50,000 or less and have filed all required returns. To request an installment payment agreement, you can fill out an online application or complete a written request and mail it in.
A direct-debit payment plan may be your best option, as the set-up fee is less expensive than other plans. After you set up a direct-debit plan, the money you owe will automatically be withdrawn from your bank account or your paycheck each month for the designated period, Steber says.
You're also less likely to miss a payment, since you don't have to remember to write a check and mail the bill. However, Wheeler warns this agreement may be revoked if you don't keep up with your payments.
"Whatever you agree to in your plan, you must honor that," Steber says. "This isn't like a credit card where if you are late you get an additional penalty. Stick to what you agree to. That is the hard-and-fast rule for IRS payment plans."
3. Try for a compromise.
An offer in compromise (OIC) can let you settle your tax debt for less than the full amount owed. This may be accepted if you can't pay your full tax liability, or if paying your bill will create a financial hardship for you or your family.
This only works if you have minimal assets you can use to pay your tax debt, though. Wheeler noted that the IRS would be unlikely to accept an OIC if you have significant assets -- for example, if you have $100,000 in an IRA (Individual Retirement Account).
"You really have to not be able to pay," says Steber. "You have to prove that."
You can check out the IRS' online pre-qualifier tool to help you determine if this is a viable option.
Late payment consequences
Steber says the consequences for failing to pay your federal taxes on time without an extension can be significant. According to the IRS, the penalty if you don't file is typically 5 percent of the unpaid taxes for each month or part of a month that a return is late. The penalty if you don't pay is typically 0.5 percent of your unpaid taxes. The penalties begin accruing the day after the tax-filing due date.
In addition to late fees, failing to pay your taxes can result in garnishment of your wages, delayed payment or forfeiture of tax refunds, and seizure of assets such as your car.
"The one thing you don't want to do is ignore a tax debt," Steber warns.
Nobody likes to pay taxes, but failure to do so will likely end up costing you more money. Your best bet is to make sure your taxes are paid in full and on time each year.
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