According to the Tax Foundation, income earners in the U.S. are subject to an average tax rate of 21 percent. That figure can prove burdensome for business owners and individuals who find themselves owing money at tax time. Although the bill may be unwelcome, you still have an obligation to pay the Internal Revenue Service, and options are available to you to make the payment. Here is how you can take advantage of your tax payment options and utilize proactive steps in the future.
Your options to pay the IRS
Paying your tax bill in one lump sum is the easiest way to fulfill your obligation, but not everyone has cash-on-hand. Unfortunately, this puts many people in a tight spot because the IRS charges interest on unpaid taxes each month, so it can be better to pay it all up front if you want to avoid paying more in the future.
You can borrow money to pay the IRS, but this should only be done after careful consideration of your options.
- Common options: According to AP, people with tax obligations most commonly rely on personal savings, friends and credit cards to pay. However, you should consider any penalties, such as an early withdrawal from an IRA, or interest that you would pay as an alternative to the interest rate offered by the IRS.
- The problem with friends: Additionally, as many as two-thirds of people who borrow money to their friends don’t end up paying them back. So, you should consider the toll this borrowing method could place on a trusted friendship in your life or business.
- Payment plan: Your last option is to request installment plan payments from the IRS, but like other lines of credit, you will have to apply and earn approval from the agency. Do what you can to pay as much of your tax obligation as possible via the payment method that you determine to be the best.
Unfortunately, not filing your taxes to avoid paying them can also get you in trouble. At the very least, you could end up burdened with additional interest payments for each month you didn’t file. You do have options to pay your taxes when the bill comes, but you can be prepared for the bill by taking additional, proactive steps.
Don’t wait for sticker shock
You don’t have to wait for tax filing season to pay your taxes. Business owners and independent contractors can prepay estimated quarterly installments. For specific advice on how to meet your individual or business tax obligations, you can rely on help from us at Goldburd McCone LLP.