Posted on: 29 August 2022
Estimated taxes are supposed to be paid ahead of tax time, but when you're dealing with rising costs and falling income, it's very easy to fall behind. And it's understandable; you have to pay rent and buy food. But making up the estimated taxes turns out to not be that easy, and you can find yourself in a spiral where, year after year, you end up adding back taxes to an ever-growing amount. Eventually, the monthly payments may not be manageable, and you could end up facing some harsh choices.
You have to get back on track with those estimated taxes quickly. To be realistic, it's not always easy, and not everyone can do this in one year. However, you still stand a good chance of getting things back to normal in a decent amount of time if you plan well. This can bring you back from the brink of more severe consequences.
First, everything helps. Even if you can only spare a small percentage of your income to put toward estimated taxes, that reduces what you owe at tax time. And remember, while being able to pay everything you owe at tax time will prevent the installment agreement you have from getting larger or defaulting, it will still add penalties to the total because you didn't make enough estimated payments. The penalties can look small, but they are money that's essentially lost to you. And, when you finally pay off the back taxes, you'll have more income to put toward a proper estimated tax payment.
Take a Percentage of Each Payment
If you get paid in huge chunks, such as being paid thousands of dollars for one project when it's completed, it's easy to set aside a portion for estimated taxes. If you get your income in small bits here and there, such as when you're paid frequently for app-based work, that can be a lot harder because the amounts seem so tiny. But, do it anyway. Don't build up a month's worth of income and then try to make up the percentage because the chances of you spending the money before you take out taxes is really big.
Go Through Your Financial Situation With a Fine-Tooth Comb
If you got into this mess due to rising costs, you've got to be realistic about your finances. No one says you have to give up your business, but do take a look at how to increase your income or reduce costs. No, you do not have to give up your lattes or cable, though reducing the frequency with which you buy treats will help. The point is not to make you feel like you're on the edge and have no money to spend on little things that make you happy but to divert some money to estimated taxes (or even to early back-tax payments) to help get you back to normal.
Meanwhile, if your current tax situation is reaching worrisome stages, speak with a tax attorney about how best to handle dealing with the IRS. The IRS prefers to work with people and not against them, believe it or not, and a tax attorney can help you get through this situation as smoothly as possible.
Contact a company like IRS Trouble Solvers, LLC to learn more.Share