Ohhhhh friends and colleagues… this is a sad time of the year for most of us. Between February and April each year, we learn the fate of our relationship with the IRS. Most of us will owe money. And, if you had a particularly successful year, you may be surprised by how much money you owe.
This is me every single year:
It doesn’t matter how well I think I’ve planned, we always owe money.
OK… onward and upward… one thing you can do to NOT find yourself in this position in 2014:
Pay your taxes quarterly. Have your CPA help you figure this out, but a quick-n-sloppy way to estimate this is:
Look at the “net income” (the very bottom amount) on your “Profit & Loss Report” each quarter – send the IRS 30% of this amount. You will send in this amount using a little slip of paper called the 1040-ES. (Note: this calcuation is a rough one at 30% because it doesn’t take into account your specific tax situation: do you own a home, are you an S-Corp? a corporation? But, this is a good place to start.)
Now, what if you have tax due that you really can’t afford for the 2013 year? The IRS has installment agreements. It’s a pretty simple process that most people are approved for. The pros are:
- Tax debt in an IRS installment plan doesn’t count towards your ‘total debt’ on your credit report.
- Interest and penalty rates are sometimes more favorable than some more expensive credit cards if you are facing having to charge your tax bill (you’ll have to go thru the math).
- Generally the application allows you to input what you can afford to pay each month. (Don’t overpay 2013 if you aren’t able to pay quarterly for 2014. Better to pay off 2013 slowly and actively pay off 2014 incrementally, quarterly. You’ll owe more in interest, but you don’t want to face not being able to afford your 2014 bill next year.)
And, if you need a good giggle about doing your taxes (and/or another method of procrastination if you haven’t done them yet)… check this out.