It’s easy to put off a lot of things in life. You can put off cleaning your kitchen, doing laundry, and even car maintenance, but there’s one thing that will never go away: taxes.
It’s no secret that paying taxes are a chore. This becomes even more of a challenge if you find yourself in a tricky financial situation. If you’re not able to afford your taxes, you’ll be facing an unpaid tax bill.
Even if you can’t pay on time, you still need to lodge your tax returns and activity statements on time. That outstanding balance can be intimidating, but the problem will only grow the longer you put off lodging. The good news is there are a lot of ways to handle your unpaid taxes. If you’re struggling with tax debt, read on to learn what steps to take next.
What to Do If You Can’t Pay
If you find yourself in a situation where you know you’re unable to pay your tax debt, don’t panic. The first thing to do is work out a budget. List your income, expenses, and current debts to see just how much you can actually afford to pay right now.
If you can afford to pay something, that’s great. If not, don’t panic. You still have options.
Next, it’s a good idea to contact the Australian Tax Office (ATO). The sooner you do this, the more options you’ll have. The staff at the ATO is familiar with all types of hardship situations, and they might have special programs that can help you either in the short or long term.
The key is to take action. Unfortunately, there’s no way to put off dealing with your tax debt. If you’re not sure what steps to take first, talk to a qualified specialist at Debt Busters who can help put you on the path to success.
What Happens If You Don’t Pay Your Tax Debt?
Next, let’s talk about what happens if you choose not to pay at all. If you fail to pay, the consequences might be more severe than you think.
- You’ll be charged interest on any amount unpaid
- Any future credits or refunds will repay your outstanding balance
- You might have your debts sent to collection agencies
- Your credit score takes a hit
- Court action might be taken
- Your right to travel may be revoked and your passport suspended
The only way to avoid a penalty is to lodge your activity statements and tax returns on time. Even if you know you won’t be able to pay by the due date, you’ll still avoid the ‘failure to lodge’ penalty because you lodged on time. This shows the ATO that you’re serious about repaying your balance and you’re aware of your obligations, even if you’re not currently able to pay.
Options for Managing Unpaid Taxes
What options do you have if you’re unable to pay your taxes in full on time? Many Aussies are surprised to discover there are a lot of programs and options that make tax season more affordable and less stressful for those who need extra financial help.
Tax repayment options:
- Payment plan – The most common option is to set up a payment plan. This lets you pay your outstanding tax debt in installments. If you know what you can afford to pay monthly, the tax office is willing to work with you to find a payment plan that’s manageable for your financial situation. However, it’s important to note that interest will still be accrued on your unpaid tax debt during the life of your payment plan.
- Natural disaster – If you’ve recently faced a national disaster such as a flood, storm, or fire, the tax office is usually willing to work with you on a repayment or deferment plan as well as financial assistance.
- Serious hardship – Finally, if you’re in a situation where paying your debt would cause serious hardship (such as not being able to provide food or accommodation), there are programs that can help.
Again, all of these options are only available once you lodge your tax return. The ATO wants to work with you to find a solution that works for both parties, so don’t be afraid to ask for help if you need it.
Lowering Your Tax Debt
When it comes to tax debt, it’s vital that you know how to keep your bill as low as possible. When you complete your tax return, you’re eligible for a number of tax deductions for some expenses, usually related to your income. These mean you pay less in taxes, reducing your overall tax debt.
Do you know all your tax deductions? Here are some of the most common ones that might apply to your situation:
- Vehicle and travel expenses – If you travel for work or use your car for work, you might be able to claim this deduction to reduce your tax bill.
- Dry-cleaning and laundry expenses – If you rack up a large laundry bill cleaning your uniform or position-specific clothing, this might be the deduction for you.
- Home office expenses – Having a home office means you’re dedicating a portion of your home expenses to maintaining this space. You can deduct expenses like your computer, phone, or other electronics that are used exclusively for work.
- Self-education expenses – Did you recently complete any study that is related to your job? If so, you can claim things like course fees, textbooks, and so on.
Get in the habit of reviewing the ATO’s website for a full list of deductions and how to claim them. Learning how to file your taxes confidently will help you ensure you’re not paying more than you need to.
How to Prepare for Tax Season
While sometimes tax debt is unavoidable, it helps to take all of the steps you can to manage it in the first place. Preparing for tax season isn’t something you do in the weeks leading up to lodging. It’s a year-round practice you can get into today.
Making tax prep part of your normal routine will help you avoid unexpected costs and the added expense of late fees. Go from “tax season” to “tax year” by being on top of your financial situation all the time.
Step 1. Review your budget monthly.
Looking over your monthly budget every month is the best way to check in on your tax maintenance. This is especially true if your income fluctuates on a monthly basis. You can know how your earnings compared to years past, and whether you need to make any changes to your current spending.
Step 2. Check what you owe.
Another strong financial habit to get into when it comes to taxes is regularly checking what you owe. On the ATO website, you can see how much you owe after you lodge your tax return. However, you can also use a tax calculator to estimate how much you’ll owe throughout the year. If you’re income and situation is similar to years past, you should already have an idea of what your tax bill will look like.
Step 3. Keep track of your expenses.
Next, keep track of your expenses. Remember those deductions we mentioned above? You need to have valid receipts in order to keep track of them. Creating an expense binder or storing them digitally can help you stay organized.
Step 4. Save for tax season.
While most people pay taxes through the pay-as-you-go system in which your employer takes a taxed percentage from your pay, there are a number of reasons you might have a tax bill. You might have received an income bonus, worked freelance, or you made some other kind of earned income that wasn’t through a traditional employer.
As long as you’re mindful, you can save for tax season by knowing your income bracket as well as how much you’ve earned through outside sources. Because this isn’t always a perfect science, working with a financial expert is often the best way to keep track of just how much you’ll owe during tax season.
Handle Your Tax Debt Today
Are you struggling with fear surrounding your tax debt? Do you expect to have a large tax bill this year that you’re not able to pay? If so, you’re not alone.
Taxes are complicated for everyone, but they become much more of a challenge when you’re not sure how to pay your balance. Luckily, you have several options for managing and paying your tax bill as long as you’re proactive.
The important thing is that you take action today. When it comes to paying taxes, don’t wait to lodge your tax return. You need to make sure you don’t miss any important deadlines that will end up costing you in fees and penalties.
Beyond that, don’t be afraid to ask for help if you need it. The friendly professionals at Debt Busters have over 15 years of experience helping individuals manage their tax debt, prepare for tax season, and create long-term financial plans. Stop living in fear of tax season and start creating a stress-free future.
Give us a call on 1300 368 322, chat with us online or fill in the enquiry form below.