Top 7 Tips To Avoid Falling Into IRS Debt

Being in debt to the Internal Revenue Service (IRS) can be unnerving. Luckily, with careful planning and strategic financial decisions, this can be avoided.

Here are seven tips to avoid falling into IRS debt. 

1. Understand Your Tax Obligations

Different types of income are taxed at varying rates, and certain deductions and credits can apply based on your unique circumstances. Understanding these nuances can help you accurately anticipate your tax liability and set aside the necessary funds. Consider seeking advice from tax professionals or IRS resources if these complexities are overwhelming.

2. File on Time

Remember, the deadline for submitting your tax form, usually April 15, is really important. If you can't meet this deadline, you can ask for extra time to get your paperwork in order — but this doesn't mean you get extra time to pay your taxes. The money you owe still needs to be paid by the original deadline. If you're late filing your taxes and didn't ask for an extension, you could get a hefty fine on top of what you already owe. So it's always better to be on time, even if you can't pay everything you owe right away.

3. Pay What You Can

If you cannot pay your tax bill in full, consider paying as much as possible when submitting your return. The IRS charges interest and penalties on unpaid balances, so reducing the principal as much as possible will help minimize these additional costs. Contact the IRS about payment plans or other options if you cannot pay the full amount.

4. Keep Accurate Records

Keeping detailed records of your income and expenses can help you accurately complete your tax return and avoid mistakes that could lead to an audit or penalties. This includes records of employment income, self-employment income, investment income, and deductible expenses. In case of an audit, having these records on hand can help you substantiate the figures on your return.

5. Withhold Correctly

If you're an employee, your employer withholds taxes from your paycheck based on the data you provide on your W-4 form. Ask a tax professional about how you should complete this form to ensure the correct amount is withheld. If too little is withheld, you could be hit with a large tax bill at the end of the year.

6. Report All Income

All income you receive, whether from employment, self-employment, rent, dividends, interest, or other sources, is generally taxable and must be disclosed on your tax return. Failure to report all income can result in additional tax, penalties, and interest.

7. Plan for Taxes on Investments

Investment income is taxable, including capital gains, dividends, and interest income. Selling an investment may result in a profit and could lead to paying capital gains tax. Planning and setting aside funds to cover these taxes can help you avoid a surprise tax bill.

To learn more about getting IRS debt help, reach out to a service provider.