Unexpected Tax Bill from IRS? Here’s What You Should Do, Experts Say

Tax returns are an inevitable part of life, and even when you’ve diligently filed your income taxes, a sneaky tax debt may rear its head when you least expect it. Whether it’s an unexpected tax bill from the IRS or a property tax bill, the unplanned expense can hit your pocket hard.

Here are the best ways to deal with an unexpected tax bill. (Photo: Pix11)

How To Handle Unexpected Tax Bill From IRS

According to GoBankingRates, handling an unexpected tax bill can be overwhelming, but fear not. There are several approaches you can take to address the situation effectively.

Here are the best ways to deal with an unexpected tax bill:

Pay What You Can or Owe by the Due Date

Paying the amount you owe by the deadline is crucial to avoid incurring payment penalties on your unexpected tax bill. If you find it challenging to pay the full amount, try to contribute as much as you can to minimize the impact of higher interest fees.

One useful tip is to use a credit card with a lower APR than the penalty and interest rate set by the IRS. This will allow you to save some money in the long run.

Ask For a Payment Extension or Debt Relief

If you’re unable to gather all the necessary funds to pay the unexpected tax bill, don’t panic.

Seek assistance from tax resolution experts such as Tax Relief Advocates (TRA). These experts can guide you through various tax resolutions, including an offer in compromise, payment extension, tax audit assistance, reducing your tax debts, and preventing wage garnishment or bank levies. Their expertise can offer you much-needed relief during this challenging time.

Utilize Employer’s Benefits

Additionally, leveraging your employer’s benefits can help you offset the unexpected tax bill.

According to Turbotax, some employers offer stock options and 401(k) matching benefits, which can be valuable resources during this time. If you’ve been with your employer for a while, you might be vested in company shares that can be cashed out immediately to cover the tax bill.

Keep in mind that accessing these benefits qualifies as taxable income, so plan accordingly.

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Obtain a Home Equity Line of Credit

In fortunate cases where you have substantial equity in your home due to purchasing during a buyers’ market, taking out a home equity line of credit can be an option to handle unexpected tax bills.

Ensure you borrow only the amount needed to pay the tax bill to keep monthly payments and principal balances manageable.

Establish a Short-term Payment Plan

Setting up a monthly payment plan with the IRS might come with a small fee, but it’s a better option than facing hefty penalties for missing the tax deadline altogether. Paying in installments allows you to get out of tax debt sooner and avoids the burden of paying in one lump sum.

Borrow Money Where You Can

If you’re short on cash to cover the unexpected tax bill, consider exploring borrowing options to avoid paying higher fees or penalties to the IRS. Borrowing from friends and family is a helpful approach, but if that’s not feasible, you can consider taking out a home equity loan or borrowing from your 401(k). Be cautious and only borrow what you genuinely need to keep your financial situation manageable.

Make Sure Your W-4 Information Is Correct

Life changes and filing errors can lead to discrepancies in your tax information and may result in unexpected tax bills. Therefore, it’s essential to ensure that your W-4 form on file is up to date. The details in this form determine the amount withheld from each paycheck throughout the year. Common things to update include your mailing address, marital status, employer details, income information, and preferred deductions.

Avoiding your taxes in the short term may seem tempting, but it can lead to long-term financial problems and deeper debt.

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