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It's important to prepare your taxes now, before Tax Day, so you're not caught off guard with a bill you can't pay.

There are many reasons you could end up owing the Internal Revenue Service (IRS) instead of receiving a refund. Perhaps you haven't had enough taxes withheld from your paycheck. The IRS' withholding calculator can help you figure out the right amount.

Or maybe you didn't contribute enough in estimated tax payments. The government doesn't want to wait until April to collect tax on all of your annual income. So if you're self-employed or receive other income like capital gains or dividends, you might need to make quarterly payments.

Online tax calculators and tax preparation software can help you determine how much money you will owe or get refunded. If you're unsure of your calculations and fear a penalty, seek help from a tax professional. Otherwise, you could face penalties if you don't pay enough estimated taxes by the due date of each payment period. Not only can these experts help verify your work, but they may also discover deductions you qualify for that can lower your bill.

You can make a midyear tax correction if you anticipate a big bill or penalties. For example, you can adjust your paycheck withholding by giving a new W-4 Form to your payroll administrator. You can also increase the amount you pay in estimated taxes.

Finding Money for Uncle Sam

Ideally, you will have enough funds to fully cover your payment. Maybe you even regularly contribute cash to a separate bank account earmarked for this very purpose. If you come up short, the IRS says you should still file your return on time and pay as much as you can.

Then, to pay off the balance, you'll need to consider some options for accessing cash. Here are four:

  1. Cut back on expenses, at least temporarily. It could be the most painless solution for storing up the money you need.
  2. Secure a short-term personal loan from your bank. You must evaluate whether the interest rate, fees and penalties make it more attractive than the alternatives.
  3. Make an early withdrawal from a retirement account. Keep in mind that raiding your 401(k) or IRA can sabotage reserves set aside for your future. You may also get hit with penalties and sacrifice tax benefits. Take out a 401(k) loan if your plan allows it. Generally, you can get a low interest rate and you'll pay that interest back to yourself — but ultimately you're still denting your future savings. This calculator from Bankrate can help you determine if you should borrow from your 401(k) plan.
  4. Use credit cards to pay your tax bill. You'll face a processing fee to pay by card through an approved payment processor. If you don't pay the balance off right away, you'll incur interest charges. Cards that offer zero-interest or low-interest financing can make the option more worthwhile, but you'll need to pay off the balance by the end of the deferred interest period to avoid weighty interest payments.

Asking the IRS for Help

If you simply can't find the money after you prepare your taxes, the IRS offers payment alternatives. For example, you can set up a short-term payment agreement to pay the full amount within 120 days; penalties and interest will accrue until the balance is fully paid. You can also apply for an installment agreement to make fixed monthly payments or apply for an Offer in Compromise, which would settle your tax debt for less than the full amount.

Owing the IRS money can feel overwhelming and scary. Ultimately, it pays to stay prudent about saving money for a tax bill and taking steps throughout the year to manage your tax liability.

This information and recommendations contained herein is compiled from sources deemed reliable, but is not represented to be accurate or complete. In providing this information, neither KeyBank nor its affiliates are acting as your agent or is offering any tax, accounting, or legal advice.

By selecting any external link on, you will leave the KeyBank website and jump to an unaffiliated third party website that may offer a different privacy policy and level of security. The third party is responsible for website content and system availability. KeyBank does not offer, endorse, recommend, or guarantee any product or service available on that entity's website.

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