How to Get Out of Tax Debt and Stop Falling Behind Every Year

If you’ve found yourself with years of unfiled or unpaid taxes, I get it—I avoided mine for five years because it felt so overwhelming I didn’t even know where to begin. Most people don’t end up in tax debt because they’re careless. It usually starts with one unprepared year. One year where you didn’t file, didn’t save enough, or just weren’t ready for the bill. And then you freeze.

From there, it snowballs. You tell yourself you’ll fix it next year—but next year brings its own expenses, more confusion, more avoidance. And before you know it, it’s been five years, you haven’t filed, the IRS letters are stacking up, and you’re scared to even open your email (hiiiii, it’s me 👋🏻)

An important distinction I want to identify here is difference between owing taxes and being in tax debt. Owing taxes means you have a balance due for the current year—a very common occurrence, especially if you’re self-employed or have multiple income streams. Tax debt is what happens when that balance doesn’t get paid. It builds over time, with interest and penalties adding to the balance as time goes on.

To give you a sense of how quickly it can grow: the IRS charges interest on unpaid taxes daily, currently around 7-8% annually. On top of that, you could face a failure-to-pay penalty of 0.5% per month, plus a failure-to-file penalty of 5% per month if you didn’t file your return. It can add up fast.

🚨 It’s actually very easy to fall into tax debt or owe unexpected taxes

Sometimes tax debt isn’t the result of anything dramatic—it could be as simple as not withholding enough from your paycheck or forgetting to set money aside from freelance work. Life moves fast, and it’s easy to miss a step when your income starts changing or you’re juggling a lot. Here are a few common reasons people end up owing more than they expected:

• Underestimating what you owe. Freelance income, rental income, investment profits, or cashing out a retirement fund—these are all taxable. If you’re not prepared, the final number can be surprising.
  
• Hoping next year will cover this year. Maybe you couldn’t pay last April, so you figured you'd catch up with your next tax refund or bonus. But then life kept lifing—and suddenly you're carrying last year’s balance into this one.
  
• Not adjusting with growth. You got a raise, launched a side hustle, or had a really good year—but didn’t update your withholdings or start making estimated payments. You’re earning more, but your tax strategy didn’t evolve with you.
  
• Avoidance. Not because you don’t care, but because the thought of dealing with it feels heavy. So the unopened mail stacks up, the account doesn’t get checked, and before you know it, it’s easier to pretend it’s not happening.

The truth is, this stuff sneaks up on a lot of people. But you’re not stuck. Once you get clear on what’s going on, you can get in front of it—and start building a plan that works for you.

🔁 The Cycle of Tax Debt

Here’s how it keeps going:

1. You owe more money than expected and can’t cover the balance. 
2. You avoid it—because it feels too big, too stressful, too impossible.
3. The interest and penalties build up.
4. The next year comes, and you’re still paying off the last one.
5. There’s no margin left to keep up with current taxes.
6. Repeat.

Tax debt turns into a cycle because you're constantly looking backward, trying to fix the past, while the present keeps moving forward. It’s exhausting. And without a clear strategy, it can feel like you’ll never get ahead.

✂️ How to Break the Cycle—For Good

This is where we reclaim your power:

1. Face the Numbers: Log in to your IRS account. Gather your tax returns. Know what you owe. This is often the hardest step—but it's also the most freeing. Once you know the real number, you can start making decisions and craft a plan. 

2. Set Up a Payment Plan: Even if you can’t pay it off all at once, the IRS offers payment plans that stop penalties from escalating. It brings structure, reduces your anxiety, and signals that you’re taking action.

💡 Pro-tip: open a 0% interest credit card and set up a payment plan for the card over the 0% interest period. This saves you money on interest and allows you to pay off the debt on YOUR terms. Read our blog on how to use a 0% interest credit card to pay off tax bills here. 

3. Start Saving for This Year’s Taxes: Don’t wait for April. If you freelance, are a full-time contractor, or own a business, open a separate account now for your tax savings. Every time money hits your account, move 25–30% into your tax fund. It’s not just about being responsible—it’s about giving yourself peace of mind.

💡 Pro-tip: Try naming the account something empowering: “Financial Freedom Fund” or “Future Me Taxes.” This is present you supporting future you! 

If you are a W2 employee, work with an accountant and check your withholdings to ensure your striking the right balance. Read out blog on how to work with an accountant here. 

4. Get Support: Hire an accountant. Book a session with a coach (hiiii that’s us 👀). Use software. Accountability helps you stay on track, and the right team will help you make decisions from a place of clarity, not confusion.

5. Commit to a New Pattern: You don’t have to be perfect—you just have to be consistent. Small actions, repeated over time, are what break big patterns. Move money into your tax savings account every month. Stay on track with your payment plan. Check your account balance every quarter. This is how people go from years of tax debt to being completely paid off with savings in the bank. 

💥 You’re Not the Only One

So many people silently carry the weight of tax debt. The guilt. The fear. The self-judgment. But no amount of shame will pay off your debt—and it definitely won’t change your financial future.

Ownership will. Consistency will. Integrity will.

The moment you decide to deal with your taxes in real time—not after the fact—you start building a completely different kind of relationship with money.

You in? Reach out to our team if you want more personalized support.