The best time to resolve your tax debt is the week before you win the lottery, when you have no assets and your income barely meets your necessary living expenses.
If you have no assets, no money in the bank and you are living paycheck to paycheck … that’s the time to settle with the IRS, not after you hit the lottery, you get a pay raise or a 2nd job, or your car loan/ mortgage / medical expenses are paid off.
The keys to successfully getting back on track with the IRS and State are:
• Making sure all your tax returns are filed
• Confirming that you have the correct withholding and that you are making sufficient estimated payments so that you do not owe in 2018 going forward, and
• Understanding your options and actually reaching an acceptable (to you) arrangement with the IRS and State to deal with the balance due
Previously we addressed the need to file any delinquent returns and replace any returns that the IRS may have filed for you. Remember the IRS will not even discuss a payment plan or other resolution on the back taxes until all your returns are filed.
This article addresses #2… Confirming that you have the correct withholding and are making the required estimated tax payments.
If you owe each year, now is the time to stop the bleeding by bringing your current years withholding and estimated tax payments in line with your estimated current year tax liability.
Once all your returns are filed the IRS and State will work with you on back taxes and they will conduct a detailed review of your pay and necessary living expenses but they typically to not spend much time on the adequacy your withholding or estimated tax payments to make sure you won’t owe going forward.
If you don’t evaluate and make needed corrections to your current withholding or estimated tax payments, you may overstate the payment amount the IRS will want on a payment plan for back taxes and you will end up owing next April when you file your 2018 return. In turn you will default the payment arrangement and you are back to square one having to go thru the negotiation process all over again. On top of it you will owe for another year’s worth of taxes.
On the other hand, if you currently get a refund each year which the IRS or State is taking, you may be over withheld and depriving yourself of additional take home pay to meet necessary living expenses … you have essentially increased your payment plan.
So exploit the inevitable…. get started now and see where you will stand for those 2017 returns on extension and your 2018 taxes, especially with the new 2018 tax laws.
It’s a lot easier to start accumulating a current year shortfall now rather than trying to accumulate the same amount later on.
Even if you filed an extension for 2017… get a draft of your return now, to see if you will owe for 2017. Then so you will have until October 15th to figure out what needs to be done to avoid a default of any current arrangement with the IRS or State.
Even if you don’t have a current tax problem it’s a good idea to estimate how the 2018 tax laws impact you.
Be on the lookout for a future article on Key 3 … Understanding your options and actually reaching an acceptable (to you) arrangement with the IRS and State to deal with the balance due.
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