The way you spend your money could have consequences when tax season comes around. If you know the ways your specific spending may result in tax consequences, you can make plans that will help you prepare for your taxes and reduce the financial consequences for the future.
Here are some common spending situations that might result in a tax consequence:
Buying Items From Out of State
When you purchase an item from out of state and have it shipped to you, you still have to pay state sales tax on that item. Many consumers don’t know this until they find out that the expensive purchases they made online has created a huge tax burden.
There are a few states that don’t charge sales tax. If you live in Alaska, Delaware, Montana, New Hampshire, or Oregon, then you don’t have to worry about this problem.
If you buy a big ticket item from a company that doesn’t charge sales tax, set aside some cash for when you fill out your taxes. You will eventually have to pay the sales tax but you can reduce the effects of the consequence by making sure you have money to pay it when it’s time.
You Used a Mortgage to Buy a House
If you are still paying interest on your home mortgage, then you can deduct that interest from your taxes. You can only deduct the interest up to one million dollars.
Opening a home equity loan could also lower your tax burden. You get to deduct your interest payments from the loan just as you would a typical mortgage. You don’t necessarily have to use the home equity loan to improve your house, either. You can deduct it even if you used it for a medical or educational expense. As long as the loan is attached to your home, you get the deduction.
You Overspent and Can’t Afford to Pay Your Taxes
Out-of-control spending can have serious consequences once mid-April arrives. If you cannot afford to pay your taxes, then you should exhaust your options before admitting that you truly cannot pay.
Most importantly, you should know that it’s important to file your taxes by the due date. Even if you cannot afford to pay the amount, you have to file your forms on time.
If you know that you will have the money soon, then you can submit your tax forms and wait for the IRS to send you a bill in the mail. This will take a few weeks, which buys you a short amount of time. If you really can’t afford to pay your taxes today, but one more paycheck will make a big difference, then this option could work for you.
If you know that you won’t have the money any time soon, then you can request an installment plan by filling out Form 9465. The government isn’t thrilled about this arrangement, but it would rather get its money in chunks than never get it at all or have to spend money prosecuting you for non-payment.
On some occasions, the IRS will reject installment plan applications. If that happens, you might need to contact a tax lawyer to review the options that could work for you.
Many of your spending habits could have tax consequences. If you have changed your spending habits significantly, then it makes sense to see a professional who can help you lower your tax burden without accidentally breaking complicated tax laws.