Smart TaxesSmart Taxes

Can't pay your taxes? Come up with a game plan

If you've sketched out your tax situation and it makes you want to try and forget it until April, we have some better options.

By Money Staff Feb 7, 2014 12:50PM

This post comes from Christine DiGangi at partner site Credit.com.


Credit.com on MSN MoneyAs much as we'd all like a refund this tax season, not everyone gets money back from the IRS. If you're not prepared for it, owing money on your taxes can seriously stress your budgets and, potentially, your credit.


Worried man © CorbisIf you're not sure whether you'll owe or be owed, there's no better time than now to get started on your taxes. There are advantages to filing early, but if you get started and realize you're going to have to spend a little extra come April, at least you have some time to come up with a game plan.


Figure out what you owe

Perhaps you've been getting a little bit more mail lately — start sorting through any tax forms you may have received from employers, financial institutions or healthcare providers in the past few weeks, follow up with anyone who should be sending you one and look into any deductions you need to prepare to claim.


It's best to approach deductions as a yearlong process (take note of business expenses, make charitable donations here and there), which is all the more reason to get going if you haven't started yet. Keep an eye out for one of the most loathed tax forms of all, the 1099-C. If you had an outstanding debt canceled in the past, you may receive a form demanding you pay taxes on it. Though you may have to pay, there are also some situations in which you may not owe that money.


Once you have everything collected, start doing the paperwork, for which you can use one of a variety of free and subscription services. You can go the paper-and-pen route with all those forms you collected, or you can use an online service that allows you to save your progress and file when you're ready. When you get to the point of figuring out what you owe the IRS or how much you will get back, you should consider your next steps.


Explore payment options

There are many ways to send money to the IRS and get that pesky tax bill taken care of. If you can afford to absorb your tax payment into your regular budget or savings, you can send a check or transfer the money from a bank account. It's no fun to bear the extra expense, but it's a good thing to avoid going into debt over taxes.


Should your bill be more than you can reasonably expect to pay in full by April 15, you can consider paying on a credit card or taking out a personal loan to cover the cost. The key in both these scenarios is to use a product that minimizes the amount of interest you'll incur, so make your choices wisely. Yes, adding to your credit card debt may hurt your credit utilization ratio (thus negatively affecting your credit scores), and taking out a personal loan results in a hard inquiry on your credit reports (another small ding), but not paying the IRS could result in a tax lien down the road. Paying off those debts should be a top priority once you've satisfied your tax obligations.


There's also the option of entering an installment agreement with the IRS — it's setting up a monthly payment plan until you've paid the full amount you owe the IRS.


The non-option is to not pay: Failing to pay your taxes will result in a tax lien on your credit reports, which is a huge negative and can cause your credit scores to fall off a cliff. We're talking about a 100-point or so drop, depending on your credit standing. Once you've paid it, the lien stays on your credit reports for seven years -- however, you can request in writing that the IRS remove it once it's paid. Ultimately, though, it's best to spare yourself the credit misery and figure out a way to pay.

Decide on a plan

Each of your options presents different consequences for your credit profile, so you'll want to have a good grasp on where you stand before you file. You should check your credit reports regularly to make sure everything is accurate. And looking at your credit scores will show you how your behaviors have impacted your creditworthiness.


For example, if you look at your free Credit Report Card and see low credit scores, you may not have the option of getting a personal loan or low-interest credit card in order to pay your tax bill. Or maybe you'll see that your credit utilization is low, but find that by paying your taxes with your credit card (therefore increasing your utilization rate), you may negatively affect your credit scores. As you go through the process of paying your debt to the IRS, you can monitor how your progress translates into credit score changes, allowing you to make educated financial decisions in other areas of your life.


Look ahead

Now that you have a plan for paying your taxes, start thinking about the future. You may want to adjust how much you have withheld from your paycheck for taxes, or perhaps you need to add more to your savings as the year goes on so you can afford to pay your taxes in full next year. It also helps to take the fresh experience of preparing to file your taxes (aka the joyous task of collecting and filling out paperwork), and use it as motivation to keep track of things as the year goes on, so next year's tax season is less stressful.


More from Credit.com:


VIDEO ON MSN MONEY

53Comments
Feb 7, 2014 3:18PM
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if you dont pay your taxes then you can go by the name of "Mr Senator" or atttorney general
Feb 7, 2014 4:17PM
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I don't want a refund at all--it's MY MONEY--and I don't want the gov'ment to have it ahead of time.  I make a game of seeing just how close to $0 I can get the amount still owed.  This year, I was only off by $324.  I'll wait until the very last moment to send the gov'ment the $324 :)
Feb 7, 2014 4:05PM
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The average worker has no chance...you need to sit on your ****, not work and collect all the benefits you can...this is the way it works...people like you and me, show up every day to take care of the lazy a-holes...sometimes I wonder what will happen when the cash runs out....stock up on ammo and canned goods now.
Feb 7, 2014 2:53PM
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Easy way to figure out you owe in taxes.  Look at the white house, if you see a flaming liberal as president in office, then you will owe more this year.
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If you don't pay your taxes, it just means that you are a liberal democrat ............. but if you can't pay your taxes and you are a  conservative ......... well, that would make you just plain greedy!
Feb 7, 2014 5:42PM
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Call Obama, he'll bail ya out!  He's helped rack it up to the tune now of 17.2TRILLION!!  What's a little more amongst friends?
Feb 7, 2014 2:34PM
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2 things in life you can't excape, Death and Taxes.  Death is questionable...
Feb 7, 2014 9:15PM
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"Washington, D.C., will never voluntarily relinquish meaningful power—no matter who is elected,". "The only rational conclusion is this: unless some political force outside of Washington, D.C., intervenes, the federal government will continue to bankrupt this nation, embezzle the legitimate authority of the states, and destroy the liberty of the people. Rather than securing the blessings of liberty for future generations, Washington, D.C., is on a path that will enslave our children and grandchildren to the debts of the past. The problem is big, but we have a solution."
Sen. , R-Okla., plans to push for a constitutional convention after he retires in the hopes that the drafting process would produce a smaller federal government.
Or you could just come to the realization that our presidents and leaders have been gunned down, our agencies manipulated to look the other way, and there will be no political solution. If thats the case prepare for war because these A-$-$-H-O-L-E-S WILL NEVER GIVE UP WHAT THEY'VE STOLEN FROM US WITHOUT A WAR. The only thing they understand is ABSOLUTE BRUTAL FORCE. 
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Then you are one of the 47% that I have to support through MY hard work.
Feb 7, 2014 3:14PM
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My BF just got hit with a HUGE settlement via BofA over a house that he lost in foreclosure due to job loss.  He is going to owe capital gains tax on the amount-after a bankruptcy and going broke!  Meanwhile BofA continues to rake in the dough by raking Americans over the coals.  And our bought and paid for 'leaders' bail THEM out. 
Feb 7, 2014 4:25PM
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The 16th amendment never really pasted and no where does it say you have to pay taxes, if you take them to court the first thing to ask is what law am I breaking?  We did not say rob us and feed your own pockets to the elected, so tell them to live as we do or vote them out.
Feb 7, 2014 4:27PM
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The IRS has a rule they ask you what you made and tell you to send it in. IRS will work with you on payment plan even if your behind bars If farmers are paid not to raise crops,why can't we pay Congress not to raise taxes (sorry we do that already) Good day tax collector.
Feb 7, 2014 8:44PM
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The IRS people are not to blame for your taxes.  They only collect them.  Don't be mad at them.  Go after the clowns who make the laws that take so much from you in taxes.  That is the idiots in CONgress!  And the one in the white house.  From there, go after your state cronies, your state legislature and your governor.  From there, go after your local people.  The city and county commissioners.  But, dont think you can vote them out!  The 6% between the 47% and the 53% will keep them in office. But, you can tell them how you feel. 
Feb 10, 2014 9:58AM
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This is a very easy question. Call Al Sharpton. LIttle Al has not paid taxes for years and between the State of New York and the Feds, he owes > $4.5 million in back taxes. If he had to pay interest and penalties, like us,  it would be two or three times that.

 His non-profit has not even paid payroll taxes for its employees. So just become an Obama supporter and yell loudly that the rich do not pay enough taxes and MSNBC, Eric Holder, and Barry will give you a pass. Works for him.
Feb 7, 2014 11:41PM
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There are always other options. We could all become Obama supporters so we not only get out of paying taxes, we won't have to do anything but keep law enforcement officers busy and collect money. 
Feb 10, 2014 11:08AM
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I love it.  Just find other ways to get the money.  People in dire financial  straits do not have other means to get the money.  If your credit is bad then no one will give you a loan.  I just love these articles. 
Feb 7, 2014 9:56PM
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When I was a child, I spake as a child, I understood as a child, I thought as a child: but when I became a man, I put away childish things.
Feb 7, 2014 7:54PM
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VOTE DEMOCRAT...  IT'S EASIER THAN WORKING!
Feb 10, 2014 10:53AM
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What if you can't pay taxes?  Don't worry!  Tax offenders often draw a pass from an*l rape in prison.  People hate the IRS that much.
Feb 7, 2014 6:48PM
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If you own anything much at all, you don't have to worry about paying your taxes.  Even if you don't pay them, they will be paid.  You house may be sold wtihout your permission but your taxes will be paid.  And, if you freeze to death in the ice and snow, don't worry.  FEMA has about 450,000 plastic coffins, accoridng to reports, stored outside along Interstate 20 near Atlanta, Georgia.  Maybe they anticipate a tax rebellion.
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