Tax Withholdings – Use Them to Ensure You Won’t Owe Again
It's easy to file a tax filing extension with the IRS. A simple form is filled out, the amount you think you owe is included, and in theory… that amount and the form are sent into the IRS before the April 15th deadline.
This allows you to put off filing the return until much later in the year.
I often see two problems associated with filing the extension.
The first is that many people don't have the amount owed available to send with the extension request.
The second is that many people already owe the IRS from previous years.
The first problem results in a penalty for failure to pay on time. The second does this and more.
If you already owe the IRS, the lack of withholding just adds to the debt. This can make it more difficult to convince the IRS to settle your debt or to place you into an IRS payment plan. There is also a penalty for failure pay what's owed when due.
If you are a bankruptcy candidate, it can make your bankruptcy more complicated, especially if the case is a chapter 13 bankruptcy.
I suggest that you do your 2015 return as soon as you possibly can when 2016 rolls around. Use it to figure out, as close as possible, how much you should be withholding each paycheck or each quarter, and adjust your situation so that you can start paying it.
This works the other way as well. If you are getting a refund, you have provided the Government an interest free loan. You need to reduce the withholding so that your net monthly income is increased and you get zero refund or as close to zero as possible.
Divert the money you get each month to a retirement plan or pay down other debt with it.