So, you owe the IRS. Bummer. Here's how to plan better for next year
While all your friends are posting on Facebook about what they plan to do with their tax returns, you're scrambling to figure out how you'e going to drum up the money you owe in taxes.
Paying taxes can be a bummer, especially if you are short on cash or unprepared. Here's what you can do to plan accordingly for next year.
Make sure you are withholding the correct amount from your W-4
Check your W-4 form or your withholding exemption form to make sure you are withholding the correct amount, according to Paul F. McGee, CPA and professor in the Accounting and Finance Department at Salem State University.
While the form may look like another language, you don't need to worry about reading it too closely, just make sure you are withholding 0 instead of 1 or another number, according to McGee.
"If you owe money this year probably because you withholdings aren’t enough, so if you go to 0 should take care of that problem," McGee said. "Even if you are married, there is a box on W-4 that says married, withhold at single rate and make that 0."
And if you are beating yourself up over not getting a tax return, don't be, according to Sam Handwerger, CPA and full-time lecturer at the University of Maryland, Robert H. Smith School of Business.
A tax return just means that someone overpaid the IRS and ultimately gave the government an interest-free loan.
"Just because you owe money to the IRS doesn’t mean you haven’t taken advantage of all your savings tax techniques," Handwerger said.
Confused about your W-4? You can also use the IRS Withholding Calculator to figure out how to fill a new W-4.
Don't panic! A step-by-step guide to everything you need to know as Tax Day approaches
Filing separately could give some couples a lower tax bill
If you're a freelancer, you will probably make this mistake only once
Freelancers may get hit with a double whammy during tax season, unless they plan ahead.
"If you are are a freelancer, or if you have multiple jobs maybe you have a W-2 and 1099 for consulting services ... those people have to do a calculation to see what they owe ... and make quarterly estimated tax payments on what they owe," he said.
That's right, to avoid paying a large lump sum at the end, freelancers need to estimate what they owe in taxes each quarter and make payments.
While paying quarterly may seem like a pain, there are ways that freelancers can reduce some of the sting, according to Sam Handwerger, CPA and full-time lecturer at the University of Maryland, Robert H. Smith School of Business.
"Many times a freelance person has expenses they can take against that income, which reduces that hurt," Handwerger said. "But if you haven't planned for it even with expenses reduce the net tax, the amount is still going to hurt."
He said many times freelancers can save by writing-off their home offices, supplies, car mileage, and even seminars and training that pertain to their jobs.
If you are really in a bind, apply for a short-term extension this year
If you find yourself unable to pay your taxes, there are several options for those who qualify, ranging from a short-term extension to a monthly payment plan, Handwerger said.
"The IRS has a fairly user-friendly way to sign up for an installment plan," Handwerger said. "You say this is how much I can pay if you pay within that time frame, the IRS will accept it without any questions asked."
Here are other options from IRS.gov for those who aren't prepared to pay their taxes in full.