Having tax season staring you in the face at the start of a new year is never fun, but it’s particularly difficult when you’re already struggling with debt. It’s a moment when you have no choice but to confront your finances, and there’s the looming possibility that you’ll end up with one more debt on your plate.
But tax season doesn’t have to be overwhelming. Here’s what you need to know about surviving tax season, from an experienced bankruptcy lawyer. For more information, check out attorney Ben Matthews’ podcast, Debt Sucks.
Tips to survive tax season
One of the best things you can do to make tax season as easy as possible is to file early. Early filings are processed faster, and any refund will get to your bank account that much sooner. Filing early also means you have more time to correct any errors. And you can’t put a price on the peace of mind that comes from not panicking on April 14 at 11:58 PM.
Consider whether you need to hire a tax professional or file your taxes on your own. If your taxes are simple, there are plenty of software tools you can use to do them yourself. But if things are complicated, it’s in your interest to hire a CPA or tax attorney.
Otherwise, our tips for handling tax season are much the same as our tips for any other money problem. Relax, make yourself a cup of tea, and then sit down and actually take an honest look at what’s going on.
What to do if you’re getting a refund
First of all, congratulations: it’s always good to get money back! But temper your enthusiasm, because a refund isn’t a solution to all your money problems. At most, it’s an opportunity to pick up some momentum and get you back in the game. Here’s what to do:
- Don’t spend your refund before you have it. We see this happen way too often: people make plans and commit their refund money before it even hits their bank account. If you’re having money problems already, this isn’t going to help.
- Use the 50/30/20 rule. 50% of your refund should go to things that give you stability: replenishing your emergency savings, fixing your car, and so on. 30% goes to improvement, such as replacing an appliance or paying for childcare or therapy – anything that makes your life feel lighter. And the remaining 20% is for joy – not an expensive vacation, but a nice dinner out or a new pair of shoes.
- Buy yourself breathing room. Again, a refund won’t solve all your problems, but it can be an opportunity to start making progress. Knock out one debt, or at least pull one out of delinquency. Or, if your debt problem is serious, remember that a lot of people actually use their refund to file bankruptcy.
What to do if you owe taxes
Here’s the downside of tax season: finding out you owe more than you paid. Don’t worry; it happens to the best of us. Here’s your game plan.
- Don’t panic. You’re not going to tax jail. Yes, some people go to prison for tax evasion, but that’s for intentionally trying to evade taxes, not for honest mistakes. It’s really not that big of a deal; much of the country owes the IRS money any given year.
- Call the IRS and set up a payment plan. Believe it or not, the IRS actually offers quite reasonable payment plans, depending on your income and taxes owed. Pick up the phone, talk to a human, and work out a plan.
- Adjust your withholding if needed. If you fix your withholding today, you fix next year’s problem ahead of time.
- Fold your tax problem into your overall financial plan. The money you owe the IRS is just one more debt to roll into your repayment plan. Put it into your budget, take an honest look at your overall financial picture, and use the piledriver method to pay off one debt at a time.
If it’s time for a financial reset, give us a call
Ultimately, if you’re dreading tax season, it might be one symptom of a larger problem. If you are struggling with overwhelming debt, filing for bankruptcy may be your way out. Although only some kinds of tax debt are dischargeable in bankruptcy, getting your other debts discharged, such as credit cards and personal loans, can give you breathing room to take care of your tax problems.
Filing for bankruptcy isn’t giving up; it’s an opportunity for a fresh start. Give us a call or contact us online for a free, confidential consultation with an experienced bankruptcy lawyer at Benjamin R. Matthews & Associates, LLC.
“Ben is one of the best attorneys that I have ever worked with. He is very professional and personable. Always there to answer questions and reply to emails very quickly. He's made a very stressful situation easier for us to deal with. Thanks for your hard work.” – Mark M., ⭐⭐⭐⭐⭐