Having to pay taxes instead of getting money back is always stressful, but it happens most of the time. For this reason, you will want to know what you can do to reduce the amount you owe. Here are five tips for doing this:
- Change Withholding Amount: One thing you can do is go to your employer to change the amount that you pay in taxes with each paycheck. This is the withheld amount and the higher it is, the less you will pay when it comes to tax day because you will have already made a good amount of tax payments throughout the year.
- Make Estimated Tax Payments: Another good idea is to make estimated tax payments. This is important to consider if you are self-employed, which means you are not having anyone withhold your taxes with each paycheck. Instead, throughout the year, you can make payments with your self-employment income so that at the end of the year, you either pay less or receive money back because you paid too much.
- Understand Penalties: Many people don't understand the penalties that are involved with not paying taxes. When you don't pay your taxes one year, it is a bigger deal than you might think. You typically are charged an additional 25% on your taxes and then you are charged interest, as well until you get the tax payments in. This can add up to a significant amount that can be difficult to pay later on.
- Pay Them Late, Not Never: If you are late on your tax payments, it's better to pay now than to continue to go each year without paying your taxes. This is because if you never pay your taxes, it is going to catch up with you. The IRS can reduce your wages, trash your credit, and even take what you owe directly out of your bank account if you have the funds.
- Make Arrangements: If you cannot afford the pay your taxes, it's better to make arrangements than to continue not to pay. This way, the IRS cannot come after you, so long as you are holding up your end of the agreement. You can make payments on the taxes you owe throughout the year, you can file for certain programs that reduce the amount that you need to pay, or, if you file for bankruptcy, it takes away what you owe to help you get back on your feet.
When you consider these five tips for reducing the amount that you owe, you can be sure that you can avoid the stress of paying a large sum of money all at once. For assistance, talk to a professional like Bronson Law Firm PC.