April 15 is rolling around again, and according to a recent Wall Street Journal article, more Americans are finding that instead of receiving a refund, they owe taxes to the Internal Revenue Service (IRS). In all, the Journal reports, 18.6 million individual taxpayers were on the hook for $316 billion at the end of 2022.

Two big reasons: not enough withholding from paychecks due to a second earner or outside income, for example from investments or a “side hustle,” and increased participation in the gig economy, where workers must estimate their annual income and submit quarterly payments.

 

Bill Davell: What should you do if you find yourself on the short end at the tax deadline?

 

Tanya Bower: Don’t panic. But do act, because the consequences of delay can be costly, including penalties and interest.  And because there are ways to soften potential blows from a shortfall.

 

BD: You say act. So, what should I do first?

 

TB: Number one, make sure your return is accurate and takes full advantage of all available exemptions, deductions and credits to reduce what you owe. If you have a complex return – for example, you own your own business or experienced unusual circumstances last year – you may need help from a professional of some kind, a preparer, an accountant or even an attorney. For simpler situations, tax-preparation software often asks the right questions to identify possible savings.

On that score, there still may be ways to reduce your 2023 taxes such as still-available retirement or Health Savings Account contributions. If you estimate your income and fell short because of a post-August 31 windfall, you might benefit from switching to an annualized installment method.

 

BD: If I still owe taxes, what next?

 

TB: Pay up promptly if you can! In particular, if you haven’t paid 100% of the previous year’s tax liability or 90% of 2023’s, you may face an underpayment penalty on top of your liability, and both your underpayment and that penalty will accrue interest.

If the IRS determines that you owe money and you don’t pay on time (April 15), a lien automatically attaches to your earnings and property, including any potential prior tax refunds. Ultimately the IRS can levy – seize – assets.

 

BD: What if the IRS claims I owe taxes, but I don’t agree?

 

TB: You have rights to appeal collections decisions if:

• You disagree with an IRS decision,
• You received a letter from the IRS explaining a right to appeal,
• You don’t want to enter into an agreement the IRS offers.

 

BD: What if I can’t pay the full amount?

 

TB: First of all, file on time even if you can’t pay the full amount to avoid a separate penalty for late filing or failure to file.

Then, reach out to the IRS immediately (even as part of your tax filing) to see if you qualify for one of three options:

• A payment plan, or installment agreement, either:
  • A short-term payment plan if you can pay in 180 days. There is no application or set-up fee.
  • A long-term agreement for payment of the debt in full over a period of up to six years. Application and set-up fees depend on amount owed and your financial situation and might be waived for low-income taxpayers.

Partial-payment plans are also available for some taxpayers in dire financial situations but will require a review of financial information.

Remember: interest will continue to accrue with all of these options.

• An offer in compromise (OIC), an agreement to settle for less than the full amount owed if the taxpayer can’t pay the full liability or if paying would cause financial hardship. The IRS looks at income versus expenses as well as whether assets are available that can be applied to the debt.
• Temporary delay in collection, if the IRS determines an inability to pay, until the taxpayer’s financial condition improves.

 

BD: How do I make sure this doesn’t happen again?

 

TB: Taxpayers who find themselves owing at the deadline should try to estimate as accurately as you can your projected earnings (and adjustments) from all sources for 2024 and if necessary, adjust your withholding or/and quarterly payments accordingly. And although over-withholding is tempting to have a large tax refund, remember that you are essentially giving Uncle Sam an interest-free loan (which he will not reciprocate if you owe him).

And whether you owe or not, there is no time like the present to identify, structure, implement and refine tax and other financial strategies not just to protect and preserve, but to do more with your money.

Which is exactly what Tripp Scott’s tax-planning and estate planning/private wealth service attorneys, collaborating with other experts, do each and every day – in addition to standing by clients finding themselves facing off with the IRS – based on their in-depth knowledge of the ever-shifting federal, state and local tax codes, regulations and rulings and familiarity with agency procedures and personnel.

Contact us at 954-525-7500 or www.trippscott.com.

(NOTE: This article is intended for general information only and does not constitute legal or tax preparation advice. If you are in need of assistance on tax matters, please contact a qualified professional.)

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Read more Ask Bill at: https://www.goodnewsfl.org/author/william-c-davell/