You probably won’t find many people who enjoy filing or paying taxes. It can be especially rough if your tax bill is larger than you expected. However, there are some options to help deal with a tax bill that’s bigger than you anticipated.
Here’s a look at several things you can do as a retiree if you face this situation and perhaps don’t have the money on hand to pay the tax bill off immediately.
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IRS Options
Let’s start with some options from the IRS. “Fortunately, there are ways to work with the IRS,” according to AARP. “You’ll want to file on time, pay as much as you can and get some expert advice as you explore these possibilities.”
Specifically, the IRS recommends three immediate actions:
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File on time to avoid penalties and interest.
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Pay what you can by the deadline.
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Check out the IRS website for some of your options.
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Payment Plans
You may already know that the IRS offers short-term and long-term payment plans. It’s important to keep in mind you may face a setup fee and accrued penalties and interest.
Settle What You Owe for Less
You may also look into the Offer in Compromise program. If the IRS agrees you qualify, you can settle what you owe for less than the full amount if it would cause you financial hardship or you think your tax bill is incorrect.
Payment Extension for Hardship
You could also try the Extension of Time for Payment of Tax Due to Financial Hardship option. If you face undue financial hardship or troubles, this is your opportunity to delay payment without penalties and interest. You must give the IRS a detailed explanation and document how it would impact you.
Fast Cash Options
Let’s say the IRS options don’t work for you. What can you do to pay for the larger-than-expected tax bill as a retiree?
Tap Into Savings
Your first step may be to consider using part of your emergency fund. You could tap into the fund to pay at least part of what you owe.
Look at All Potential Money Sources
You can also look into other sources of money. For example, according to AARP, you could consider cash from liquidated investments, income from required minimum distributions and funds from your Roth IRA.
Take Out a HELOC
You may also consider taking out a home equity line of credit. Per TurboTax, be sure to only borrow the amount you need to take care of the tax bill so you keep your monthly payments and principal balance low.