With tax season currently underway, most people will find themselves in one of two camps - anticipating a tax refund or dreading the thought of owing the IRS. If you’re in the latter category this year, my heart sincerely goes out to you because I’ve personally been in that situation more than once. And because I’ve been there, I have several practical tips and Bible scriptures to encourage you and help you successfully navigate this tax season.
Tip #1 - Pray
This is always my first tip when facing a challenge because prayer truly changes things, starting with your mindset. If you take a few moments to express your concerns to the Lord in prayer and specifically ask for His guidance, you’ll be amazed at how doing this can influence the situation and direct your next steps. Additionally, when you pray, you’re also taking a proactive step to relax, breathe and relieve any physical and mental stress. Finally, please don’t be afraid or ashamed to pray because the Lord is already aware of the situation and knows what help you’ll need to move forward. And by praying, you’re inviting the Lord himself to intervene and share that wise counsel with you.
Psalm 4:1; Psalm 145:18; Philippians 4:6-7; Matthew 6:8
Tip #2 - Don’t delay filing your taxes
Even if you know for certain that you owe the IRS, please resist the urge to procrastinate on filing your taxes. This is because it generally takes lots of time to file and if you wait until the last minute, you might not get everything completed on time, making you miss the April 18, 2022, filing deadline. This makes matters even worse because you could be at risk for additional IRS financial penalties, fees and more.
Tip #3 - Ask for help
This tip is two-fold, suggesting that you ask for help with filing if needed and that you ask for help with paying back any taxes and fees owed. In the first scenario, if you’re having difficulty filing your taxes on your own, consider working with a tax professional to help you navigate the various forms.
Now, you might be thinking, “If I already owe money, why would I pay someone to tell me that?”
I can certainly understand this sentiment, but working with a tax professional can be helpful because he or she might help you identify solutions that could significantly reduce any taxes owed. I actually experienced this situation soon after my divorce. I assumed my tax bill would be horrible because I had to file “Married Filing Separately” that year. However, when I worked with a tax professional, he found additional deductions that I didn’t know I was eligible for and this ultimately made the amount I owed the IRS much less than I originally feared. Whew!
If it’s determined that you truly do owe the IRS money and you don’t have it available, the second scenario for asking for help becomes relevant. In this example, you can proactively contact the IRS and ask for help with understanding your options. In many cases, you can potentially request an extension or you can make a payment plan directly with the IRS.
Tip #4 - Think about your long-term repayment strategy
Once you’ve confirmed your payment options with the IRS, I highly recommend that you do two things at once:
Pay the monthly amount to the IRS that you agreed to so you stay current on your payment plan, AND
Pray about a broader strategy that you can use to quickly pay off the total IRS debt ahead of your agreed upon payment schedule. This is because the IRS will continue adding late fees and additional financial penalties, even while you are making payments. So in this case, paying off the total debt is definitely better sooner than later. There are several options that you can take to do this, including working a side hustle to bring in extra money or getting a personal loan to quickly pay off the IRS debt. NOTE: I’m normally not an advocate of taking out new debt to pay off old debt but in this circumstance, it might be worth it to avoid accruing additional IRS fees and penalties. I realize this is a controversial suggestion so I definitely suggest praying for wisdom and seeking further financial guidance before taking this step.
James 1:5; Proverbs 11:14
Tip #5 - Identify ways to avoid owing the IRS next year
At the end of the day, if you’ve worked through the first four steps, you’re well on your way to navigating this year's tax season. Because tax debts can roll over to the next year, I highly recommend praying and reflecting on how this tax situation was originally created. I’m not recommending this from a place of judgment or to make anyone feel guilty about anything. Instead, I encourage you to take time and reflect because knowledge is power and the more you know, the less you have to fear being in cahoots with the IRS in the future.
From my personal and financial coaching experience, many IRS debt situations stem from these areas:
Not having enough taxes withheld from each paycheck
"Cashing out" your 401k when you change jobs
Borrowing funds from your current 401k if you still are working the same job
Not properly accounting for taxes owed from receiving unemployment compensation
A new marriage or divorce
Defaulting on student loans
These are just a few examples of situations that can put you in a position where you owe the IRS. Regardless of the reason, you want to start developing strategies now so you can avoid owing the government next year if possible. I always recommend talking to a tax professional first for guidance because they’re most familiar with current tax laws, but I certainly can provide some general advice as well via my LiftOff Your Finances™ Personal Coaching Services.
This was definitely a longer blog post, but I hope it shed some light on how to navigate tax season so you can rest easier, knowing that you have a plan. As always, I am praying for you; please know that you're not alone in this situation and that there is always hope in the Lord.
Standing in faith with you,