Why Do I Owe Taxes?
There are many reasons why you might owe the Internal Revenue Service this year. It’s certainly possible to owe taxes even when you have withheld money from your paycheck all year.
5 Reasons Why You May Owe Taxes This Year
Because everyone’s situation is unique, there are several different reasons why you may owe money on your taxes. Five common reasons are outlined below.
1. Failing To File
Failure to file on time is a common reason why you’ll end up owing taxes. State tax dues will vary. Whenever you file late and don’t apply for an extension on time, you can incur late fees and interests that will increase your tax bill. If you are wondering why you still owe taxes this year, it’s certainly possible that you submitted a tax return after the due date.
2. Not Withholding Enough From Your Paycheck
The amount that’s taken out of your paycheck each year is an estimate of what you will owe when it comes time to file taxes. You will receive a tax refund if you overpay. If you do not pay enough throughout the year, though, you will end up with a bill come tax season.
3. Tax Code Changes
Recent tax code changes will undoubtedly impact how much you’ll owe in taxes. If you expect to receive a refund each season, it may not be the case with new tax laws put in place. When the IRS updated its tax brackets, it’s possible you were put into a new category, altogether.
4. Changes In Deductions
If you didn’t qualify for typical deductions and credits you expected, then you may owe taxes this year. For instance, the earned income tax credit comes with annual limits. If you have made more money this year than in previous tax years, you may not qualify. Many parents will take advantage of the child tax credit, which comes with income limits and age restrictions.
5. Higher Income
Receiving higher pay this year will mean you are going to pay more in taxes. If you worked more hours while getting paid hourly or a salary gets raised, you could have been bumped into a higher tax bracket.
What To Do If You Owe Taxes
Thankfully, there are numerous options if you cannot pay your entire tax bill when it’s due. Here are a few payment options for you to consider:
- Sign up for an IRS installment plan.
- Apply for a full-time agreement if you are able to pay taxes within 120 days.
- Make an offer in compromise.
- Consider a loan or other financing options to make tax payments.
Additional Reasons For Owing Taxes
- Underreporting Income: Failing to report all of your income on your tax return is a common reason for tax debts. This can result from unintentional errors, such as forgetting to report freelance income or investment gains, or intentional efforts to hide income.
- Failure to Pay Estimated Taxes: If you’re self-employed or have income not subject to withholding, you are generally required to make estimated tax payments throughout the year. Failure to make these payments or underestimating the amount owed can lead to a tax debt when you file your annual return.
- Changes in Tax Laws: Tax laws can change from year to year, and sometimes taxpayers are unaware of new deductions, credits, or changes in tax rates. Failing to take advantage of available tax breaks can result in a higher tax bill.
- Tax Credits or Deductions Disallowed: The IRS may disallow certain tax credits or deductions if you don’t meet the eligibility criteria or if you can’t provide adequate documentation to support your claims. This can result in a higher tax liability.
- Tax Penalty Assessments: The IRS can assess various penalties for non-compliance, such as late filing, late payment, or underpayment of estimated taxes. These penalties can significantly increase your overall tax debt.
- Tax Audits: If the IRS audits your tax return and identifies discrepancies or errors, it may lead to additional taxes, penalties, and interest. Audits can be triggered by various factors, including red flags on your return or random selection.
- Unpaid Payroll Taxes: If you’re a business owner, failing to withhold and remit payroll taxes for your employees can result in substantial tax debts. The IRS takes payroll tax compliance very seriously.
- Tax Fraud: Engaging in fraudulent activities to evade taxes is illegal and can lead to severe penalties, including criminal charges. Tax evasion can result in substantial tax debts and legal consequences.
- Inheritance or Windfall: Receiving a large inheritance or windfall may lead to unexpected tax liabilities, especially if you’re not prepared for the tax consequences of the transaction.
- State Tax Debt: In addition to federal taxes, you may owe state taxes. State tax debts can occur for similar reasons as federal tax debts, including underreporting income, failing to pay estimated taxes, or non-compliance with state tax laws.
It’s crucial to stay informed about your tax obligations and ensure accurate and timely filing and payment of taxes. If you find yourself owing taxes, it’s advisable to address the issue promptly by filing your return or payment, seeking professional tax assistance, or exploring options such as installment agreements, Offer in Compromise, or penalty abatement if you’re unable to pay the full amount owed.
Tax Settlement in Mesa, Arizona
If you need IRS Debt Help, Tax Debt Settlements or Tax Debt Advising in Phoenix, Mesa or anywhere else, Tax Debt Advisors can help! Give us a call at 480-926-9300 or fill out our contact form for a free consultation.
