Sometimes, even with the best financial planning, individuals may end up with a higher tax bill than they can afford. You have options if you owe back taxes to the IRS, and Wiztax can help you settle your tax debt for less. Start by answering a few simple tax questions and our free online system will instantly show your Offer in Compromise settlement amount. We’ll also show you if you qualify for a Hardship Status and your Payment Plan options.
When we help individuals settle their tax debt, we are often asked why an individual owes taxes or has an unexpected tax bill. Here’s a quick list of common reasons you might owe taxes.
Your Employer Withheld Too Little from Your Pay
Most employers calculate your tax withholding for you, using the information that you provide them. This includes the number of people in your household and deductions you wish to have taken out of your paycheck. For example, a single person may only claim themselves for taxes, while families with children can claim themselves, their spouse, and their kids.
Some individuals choose to have less money taken out of their paychecks, thereby increasing the amount they bring home each pay period. Be careful however – if you and your spouse both claim the maximum deductions you’re allowed, you may end up owing at tax time, since your employers didn’t withhold enough in taxes to pay the tax owed.
Extra Income Not Subject to Normal Withholding
Some forms of income may not have taxes automatically withheld. One of the most common forms is income derived from buying and selling stocks and bonds. While day trading or trading on the side can be a great way to earn extra cash, be sure to keep detailed records and set aside money over the course of the year to pay any taxes you’ll owe on these earnings.
It’s not just stocks that can create a larger tax bill. Unemployment benefits are considered income and subject to taxation. These unemployment benefits you received must be reported on your federal tax return. Some states also tax unemployment. Make sure that you’ve saved enough from COVID-related unemployment to pay the taxes.
Small business owners and self-employed individuals may have a different tax threshold than individuals employed by a more traditional employer. Sometimes, self-employment tax may end up being a bigger burden than taxes owed by others. If you aren’t sure how much money to put aside during the year from your small business or side hustle, a tax professional or attorney can help you plan accordingly.
Changes In Your Tax Return
Life changes can also affect your taxes. For example, kids who move out and go off to college or begin careers will be filing their own taxes and no longer be your dependents. A death in the family or divorce can also affect your tax filing. When you have a significant life change, it’s important to update your tax information with your employer.
Aside from changes to your family, refinancing your home’s mortgage can also impact your taxes. Although you may have refinanced your mortgage for a more favorable rate, you may not be able to claim as much for interest rate deductions at tax time.
Help! I Owe Taxes I Didn’t Plan For
If you notice that you owe more than you’ve budgeted for, you have options. For example, if you’re having too little withheld from your paycheck, then you can speak with your employer or create a new Form W-4 for the next tax year on the IRS website. If you have non-wage income, you may be able to have income tax withheld voluntarily. You’ll have to complete a separate form (Form W-4V) and send it to the payer – not the IRS.
While these options can help you in the future, you may need help with taxes you owe this year. In these cases, you may be able to file an extension to pay your taxes, giving you a few more months to pay past the April 15 deadline. This is an option if you file your taxes on time and you think you’ll have enough money to pay your tax bill by the extension deadline, typically at the end of July.
Tax Debt Relief Options
For individuals who owe back taxes and aren’t able to repay the full amount, there’s an Offer in Compromise (OIC). An OIC settles your tax debt for less than you owe. Answer a few simple questions at Wiztax.com and Wiztax instantly calculates your Offer in Compromise settlement amount. Our online system then fills out all the IRS OIC forms for you. Based on your current financial situation, our system will also determine if you qualify for a Hardship Status. In this case, you won’t have to make any payments to the IRS until your situation changes. You can start for free here. Questions? Schedule a call.
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