Do you owe income tax that you have no money to pay for? This is a situation familiar to a lot of people in debt. But what is unsettling to most people is that they find out only after preparing their tax return, by which time it is usually a little too late to start looking for the funds. If you think you might find yourself in this situation this tax season, and are worried that you may have to pay a penalty, then here are some actions you can take:
- File your taxes on time: Discovering that there is no money in the bank to pay your income tax can throw you into a panic. Fearing that you may have to pay a penalty or interest on the funds you owe, may make you think of postponing when you file your taxes. But what you must understand is that the penalty for not filing your tax return can be much more severe when compared to the smaller penalty for paying late. So, whether you have money or not, file your tax returns by the deadline.
- Find the money: If you don’t want to pay a penalty, then try to find the money before the deadline. Ask your family and friends, get a loan from a bank or other lenders, use your home equity or find an extra part-time job. The sooner you can find the money, the lower the penalty will be.
- Pay the tax with fine: If you are unable to find the money within the deadline, then wait until your payday or until you can get some money and then make the payment as soon as the money arrives. You will be charged interest on the amount you owe the government and possibly a penalty. Keep in mind that the interest accumulates every month that you don’t pay.
- Pay in installments: If you simply cannot afford to pay your income tax in full, consider paying it in several instalments spread over some months. The Canadian government would rather get the money in installments from you than not at all, causing them to have to take other actions. They have an instalment plan. Click here to learn more about how to pay your income tax by installments and find out if you are eligible.
Once you owe income tax to the government, there is no way that you can dodge it because the Canada Revenue Agency (CRA) has extraordinary powers to make you pay up. The agency can seize your account, garnish your wages and may even register a lien on your home. Therefore, it is extremely important that you explore all available options to pay your income tax. Remember, if you decide to pay your owed income tax in installments, you’ll have to work this amount into your monthly budget.
For help creating a budget that works for your lifestyle, and helps your repay your debts, contact us today.