Managing a huge tax bill

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Topic Author
fanoflazyportfolio
Posts: 24
Joined: Tue Jul 10, 2018 9:12 am

Managing a huge tax bill

Post by fanoflazyportfolio »

I have a huge tax bill (around 100K) that is due to federal and a state owes me around 50K in tax returns. A few questions:
  • Is it possible to file for the state tax return, get the refund and then use it to fund my federal tax dues?
  • Given the markets have taken a hit this week, what are the best options to pay the tax bill?
    • sell stocks/index funds to cover the tax bill
    • take a short term loan to pay of the tax bill. if so, any specific suggestions here to find these loans?
    • Use credit cards to pay the bills while waiting for the state tax refund
    • any other available options?
  • Assuming the markets go up before Apr 15, what would be the best criteria to sell stocks/index funds? I was told that I sell the stocks/IFs that are lossy so that I can claim a tax deduction but this seems very counter-intuitive to me. Any suggestions on this and other reading material will be appreciated.
  • Should I hire a financial advisor to help me going forward so that I don't end up in such situations?
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ResearchMed
Posts: 10695
Joined: Fri Dec 26, 2008 11:25 pm

Re: Managing a huge tax bill

Post by ResearchMed »

krishnam wrote: Fri Feb 28, 2020 12:12 am I have a huge tax bill (around 100K) that is due to federal and a state owes me around 50K in tax returns. A few questions:
  • Is it possible to file for the state tax return, get the refund and then use it to fund my federal tax dues?
  • Given the markets have taken a hit this week, what are the best options to pay the tax bill?
    • sell stocks/index funds to cover the tax bill
    • take a short term loan to pay of the tax bill. if so, any specific suggestions here to find these loans?
    • Use credit cards to pay the bills while waiting for the state tax refund
    • any other available options?
  • Assuming the markets go up before Apr 15, what would be the best criteria to sell stocks/index funds? I was told that I sell the stocks/IFs that are lossy so that I can claim a tax deduction but this seems very counter-intuitive to me. Any suggestions on this and other reading material will be appreciated.
  • Should I hire a financial advisor to help me going forward so that I don't end up in such situations?
Call the IRS. See if something like a payment plan is possible, even if it's with that 50k as the final payment when it comes in.
You'll probably pay interest, but hopefully avoid any penalties.

My understanding is that as long as you keep in touch and work with them, they aren't the monsters some people seem to fear. :wink:

And can *you* figure out what happened in terms of figuring your withholding such that it was off by so much?

RM
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CurlyDave
Posts: 1971
Joined: Thu Jul 28, 2016 11:37 am

Re: Managing a huge tax bill

Post by CurlyDave »

You can almost always get an "installment plan", where you pay a certain amount each month for a number of years. It can be up to 6 or 7 years I think.

The interest rate they charge is quite reasonable, and you can pay it off early with no penalty.

I am not even sure if it shows up on your credit report or maybe not.

In this particular instance, you could ask for an installment plan and pay off 50k of it when you get the state refund.
Topic Author
fanoflazyportfolio
Posts: 24
Joined: Tue Jul 10, 2018 9:12 am

Re: Managing a huge tax bill

Post by fanoflazyportfolio »

Thanks for the responses. I was not aware of the installment option.
Gill
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Location: Florida

Re: Managing a huge tax bill

Post by Gill »

Did you just become aware of this potential tax obligation? Did you sell a business or something similar? I’m just curious how you didn’t anticipate this and had the funds set aside long ago. How did you end up with such a huge refund? Is the net amount you owe $50K? There are penalties for late payment of tax, not just interest.
Gill
Last edited by Gill on Sat Feb 29, 2020 9:19 am, edited 1 time in total.
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
SilverGirl
Posts: 93
Joined: Sun Oct 15, 2017 8:55 pm

Re: Managing a huge tax bill

Post by SilverGirl »

Installment plans do not show up on your credit report. We did it one year and they were easy to work with.
jacoavlu
Posts: 994
Joined: Sun Jan 06, 2013 12:06 pm

Re: Managing a huge tax bill

Post by jacoavlu »

I don’t know whether you can file the state before the federal. I would guess that you can but you’ll probably need to know specific numbers from the federal return to do the state

Is your federal return completed, but not yet filed? Or still incomplete?

Do you know if you’ve already met your 2019 federal safe harbor amount with taxes already paid? If so, you should wait to pay the balance due until 4/15. If not, you’re probably already incurring interest charges on the balance due.
Flora
Posts: 113
Joined: Sat Mar 26, 2016 6:19 am

Re: Managing a huge tax bill

Post by Flora »

Assuming both returns have been completed, you can file both returns now without including any IRS payment. Then later when you receive the state refund you can mail the 1040-V payment voucher and a $50k check to the IRS, even if it is after April 15. You will receive an IRS notice later for any interest, penalties and remaining balance due.

Installment Agreement information:

https://www.irs.gov/forms-pubs/about-form-9465
Topic Author
fanoflazyportfolio
Posts: 24
Joined: Tue Jul 10, 2018 9:12 am

Re: Managing a huge tax bill

Post by fanoflazyportfolio »

Gill wrote: Sat Feb 29, 2020 9:10 am Did you just become aware of this potential tax obligation? Did you sell a business or something similar? I’m just curious how you didn’t anticipate this and had the funds set aside long ago. How did you end up with such a huge refund? Is the net amount you owe $50K? There are penalties for late payment of tax, not just interest.
Gill
My employer did not withhold enough taxes on RSUs resulting in the sudden tax obligation. I was anticipating some additional taxes but not to this extent and hence have been caught off guard. I am working with a CPA to address this messy situation, but also wanted some guidance from members of this forum.
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