Tax season is coming to an end but not everyone is getting a refund. According to a study from personal-finance website Magnify Money, which analyzed IRS tax data from 2012 to 2016, 17 percent of taxpayers faced a federal tax bill. Of those who owed money, the average bill was $5,294.
It got worse in 2017. Personal-finance site GOBankingRates notes that last year, "the IRS expected that about 70 percent of taxpayers would be in a position to receive tax refunds, which means approximately 30 percent of taxpayers probably had to open their wallets to the U.S. Treasury." And they predict that scenario will likely repeat itself in 2018.
And, of course, millions of Americans have to contend with state taxes, too.
If you find yourself with a tax bill instead of a refund, it's important to take it seriously. Failure to pay can damage your credit score, cost you interest and additional penalties and, in extreme cases, lead to criminal prosecution. Here are three tips to help you make the best of a bad situation.
If you owe the government, or think you may, file your taxes anyway. Be proactive: "The worst thing to do is not take any action or to react in a delayed fashion," Ted Kleinman, a certified public accountant and owner of U.S. Tax Help, tells GOBankingRates.
That's because if you don't file a return and owe taxes, you could be subject to the failure-to-file penalty, which could cost 5 percent of your unpaid tax bill each month it goes unpaid after the deadline, and which could reach a maximum of 25 percent of what you owe.
If you do file but don't pay, the IRS will enact a smaller penalty of 0.5 percent on what you owe each month until you pay in full.
You may not be able to fully pay what you owe, but you can try to negotiate a payment plan.
If you know you can pay your entire bill within 120 days, you can apply for a full-payment agreement, which can allow you to make monthly payments to chip away at your debt. Interest and penalties will still accrue until your debt is paid off, but there are no additional fees.
For more substantial repayments, you may be eligible for an installment agreement, in which you'll have more than 120 days to pay off your debt. There are additional application fees with this plan, though.
In some cases, you could be eligible for an "offer in compromise," which allows you to pay less than you owe if you meet certain qualifications and would fall into serious financial hardship if you were required to pay your debt in full.
But "the Offer in Compromise program is not for everyone," the IRS notes. Before applying, you should explore all other payment options.
Lastly, if the IRS determines you cannot pay any of your debt, it can temporarily delay collection until your financial condition improves. If you are approved for a delay, interest is still charged until you pay completely. And the IRS may file a federal tax lien against your property to "protect the government's interest in your assets."
Your specific tax situation will determine which payment options you qualify for, but regardless, the sooner your address your situation, the more time you'll have to negotiate a lower payment or accumulate fewer penalties.
So, rather than trying to avoid the problem of your taxes, do some research, talk to a tax professional and move toward a solution.
And figure out how to avoid a bill going forward. If you're being charged thanks to income from a side hustle or participating in the gig economy, remember next time to pay as you go. An experienced freelancer explains how here.
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Video by Brandon Ancil