If You Owe Taxes:
- Set up a Payment Plan: If you owe a large sum and don’t have the cash on-hand, avoid using a credit card to pay your liability. Instead, contact the IRS to set up a payment plan. They’ll work with you to establish monthly payments at a reasonable interest rate.
- Track Your Deductions: Many people wait until the tax deadline looms before totaling their deductions. Instead, track your expenses, charitable contributions and other deductions throughout the year to ensure you don’t leave any money on the table.
- Take Advantage of Tax-Advantaged Accounts: Earn more deductions by contributing to an HSA, 401(k) or IRA – but use cash, not credit cards, to build these accounts.
- Use Tax Credits: Keep abreast of credits like the Earned Income Tax Credit, Child Tax Credit, and Education Credit to maximize your credits and deductions at tax time. Also consider state tax credit programs to direct your tax dollars to a specific organization or charitable program. Come tax time, you’ll receive a dollar-for-dollar tax credit for your contribution.
- Pay Estimated Quarterly Taxes: Self-employed workers should make estimated quarterly tax payments to avoid paying penalties and interest when filing their tax return. For estimated tax payments, the IRS divides the year into four payment periods, each with a specific payment due date. To determine your estimated tax, use last year’s tax liability as a starting point. For example, if you owed $8,000 in taxes last year, you will submit Form 1040-ES along with payments of $2,000 in April, June, September and January (of next year) to cover your estimated income this year. Visit the IRS for more information.