Worried You’ll Owe the IRS Money This Year? Here’s What to Do

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Owing money on your taxes isn’t fun. Read on for tips on what to do if you expect to be in that situation. [[{“value”:”

Many people who file their taxes wind up with a refund. But you may be worried about owing the IRS money this year, and understandably so.

First, if your income increased in 2023 but you didn’t increase your withholding at work or make estimated tax payments on things like interest income in your savings account, then you may discover you have a balance due when you file your taxes this year. Or, if you did some contract work on the side and got paid in full without having taxes removed, that, too, could trigger a tax bill.

It can be argued that it’s better to owe the IRS a bit of money during tax season rather than be due a refund. When you get a refund, it means the IRS got to hang onto your money for longer, interest free.

But owing the IRS money can be a problem if you’re unable to pay your tax bill in full by the April 15 filing deadline. Although the IRS will generally let you get on a payment plan, you’ll still incur interest on your unpaid balance. So if you’re worried you’ll owe the IRS money this April, consider making these moves now.

1. Sneak extra funds into your 2023 IRA

In 2023, contribution limits for IRAs were $6,500 for savers under 50 and $7,500 for participants 50 and older. You actually have until this year’s tax-filing deadline to make contributions to your 2023 IRA. And doing so could shield more of last year’s income from taxes. So if you didn’t max out last year and you have some spare cash, it’s not too late to finish funding your 2023 account.

2. Cut your spending starting now

Taxes — and associated IRS payments — aren’t due for about another eight weeks. That gives you a decent chunk of time to whittle down your spending temporarily and free up cash to pay the IRS if necessary.

In the coming weeks, try to cut back on things like takeout, beauty treatments, and other services you can technically do without. It’s not easy to deny yourself the things you enjoy, but doing it for a few weeks could spell the difference between being able to pay an IRS bill or not.

3. Take on a side gig

Cutting back on spending can be tough, and you may only be able to do so much of it. If you’re concerned about owing the IRS a larger sum, consider picking up a side gig now. You can use your earnings to settle your debt so it doesn’t linger. However, keep in mind that if your side gig is done on a freelance basis, you’ll need to set aside some of your earnings for tax purposes so you don’t wind up in the same situation next year.

Run your tax numbers now

If you’re nervous about owing the IRS money, Mark Steber, Chief Tax Information Officer at Jackson Hewitt Tax Services, says that one of the best things you can do is file your 2023 tax return as soon as possible. That way, you’ll know exactly what your tax bill looks like, and you’ll be able to make a plan to come up with the money.

“If you owe, {filing early} gives you more time to pay, as you don’t have to pay the same day you file — you have until Tax Day, April 15, 2024,” Steber explains. So if you find out in mid-February that you owe the IRS $800, you’ll know you’ll have to save or earn roughly an extra $100 a week to get that debt settled by mid-April. If you don’t have a specific number to target, you might cut your spending or work a side gig only to still come up somewhat short.

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