Timely management of your tax bills is essential to avoid burgeoning tax debt and the interest and tax penalties that the IRS will impose on you. By managing your bills, you will be able to side-step future offsets to pay your tax debts, and if you’re trying to obtain a loan, you won’t face rejection due to unpaid taxes. Here are some of the things that you can do to keep your tax obligations under control.
Paying Quarterly as an Independent Contractor
As an independent contractor, you may be able to reduce your tax burden by paying your estimated tax and self-employment tax every quarter. You can use the Form 1040-ES worksheet to figure out your estimated earnings for the year and Form 1040 to figure self-employment tax.
Opting for Installment Plans for Overly Large Tax Bills
If you have overly large tax bills that you are unable to pay in a lump sum, you can opt for paying them in installments. You can fill out an online payment agreement application on the IRS website, and receive an immediate notification of whether the IRS has approved your payment plan. With this option, you will receive an extended time of more than 120 days in which to pay your full tax amount in monthly installments.
You can pay through Direct Debit, by phone using Electronic Federal Tax Payment System, or by check, money order, credit card, or debit card. There are set-up fees for each of these payment options.
Seeking a Settlement Option for Past-Due Taxes
For any past-due taxes that you can’t pay off in a lump sum, you may be able to negotiate with the IRS for a workable settlement option. Some of the most common options are offer in compromise, currently not collectible, installment plan, and penalty abatement. These options can give you additional time in which to pay past-due taxes or have them reduced or even removed.
Filing Your Taxes with the Help of a Finance Professional
The main benefit of getting tax filing assistance from a finance professional is that you can be sure that you are following all the tax laws, and you can get a free tax consultation before you hire them. They will investigate your tax situation, determine the best tax resolution options, and file the necessary documents. Additionally, they will help you with negotiating a tax settlement for any back taxes you owe.
Taking Advantage of Any Tax Credits That You Qualify For
You should check if you qualify for any of the five tax credits that the IRS prescribes: education, healthcare, income and savings, homeownership, and family and dependent. If you qualify, you can subtract these credits from the amount you owe for taxes. For instance, if you qualify for educational tax credits like American Opportunity Credit and Lifetime Learning Credit, you could reduce your taxes by $2,500 and $2,000, respectively.
There are plenty of ways to manage your tax bills and keep your debts from spiraling out of control. It is in your best interest to take conscious steps toward debt payment as the sooner you can pay it off, the sooner you can look forward to a debt-free and, therefore, stress-free future.