What to do if you can't pay your taxes
Start by filing on time and paying as much as you can. Ignoring the problem will just make it worse.
March 6, 2011
What if you owe money to the IRS but don’t have the cash to pay the bill?
Don’t panic, but don’t ignore the problem, either. File your 2010 tax return by the April 18 deadline, even if you can't pay the full amount you owe. The late-payment penalty is 0.5% per month of the unpaid amount, up to 25% of the balance. Still, that's a lot better than the failing-to-file penalty of 5% a month.
Pay as much of your tax bill as you can when you file your return, to reduce the penalties and interest that will continue to accrue until the balance is paid in full. Then wait for the IRS to send you a bill for the balance. That should take about 45 days and give you some time to come up with some or all of the cash.
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Minimize the damage. Interest and penalties can add up quickly. Say you owe $9,000 in taxes on your 2010 return. If you file your return by the April 18 deadline and send no money -- but pay your tax debt in full three months later -- you’ll owe $9,658, including interest and late-payment penalties, according to estimates calculated by Jackson Hewitt Tax Services.
But if you delay filing your taxes until you come up with the money, and file and pay your taxes three months after the due date, your tax bill will balloon to $12,452, including interest (currently 4% on unpaid balances compounded daily) and failure-to-file penalties. “Waiting to resolve the entire matter all at once isn’t the best course of action,” says Mark Steber, chief tax officer for Jackson Hewitt.
If you act before April 18, you can file Form 4868 to delay your tax-filing deadline until Oct. 17. But it won’t delay the deadline for paying your taxes. Interest will continue to accrue on the unpaid balance. However, the late-payment penalty does not apply during the six-month extension period if you paid at least 90% of your actual tax liability before the original April 18 due date and pay the balance when you file the return.
Where to get the money
If you own a home, consider tapping a home-equity line of credit to pay your tax bill (assuming you still have equity). You can probably deduct the interest you pay on the home loan on next year's tax return.
Paying by credit card is another option. That could be cheaper than incurring IRS penalties and daily compounded interest. However, you’ll also owe a convenience fee -- paid to the card issuer, not the IRS -- for up to 2.35% of the entire transaction. If you’re enrolled in a credit card rewards program, the tax payments qualify for points, rewards, airline miles or cash back.
If you can’t come up with the cash on your own, contact the IRS at 800-829-1040 to discuss your payment options -- which may include an extension of up to four months or an installment plan for up to three years (as long as your tax debt doesn’t exceed $25,000).
Don’t get suckered by the cable TV ads promising to settle your tax bill for pennies on the dollar. In extreme cases, you -- or a tax-resolution company acting on your behalf -- may be able to file an Offer in Compromise with the IRS and settle your tax debt for far less than you owe. Only a small percentage of tax-reduction offers are accepted, and you must prove that you don't have the means to pay and probably never will, usually because you’re too old, too poor or too sick. But if you are employable and have assets you can sell to raise cash, be prepared to pay the tax man.
Ok don't tax the RICH Corporations! But don't give any breaks, shelters, loopholes on taxes. Flat tax no matter how much or how little they make. No more public money obtained by the government to be given to a piece of paper called a corps. that never can feel hunger, thirst, pain, guilt... so why is it Corporations are considered to be a living being??? Tax the Corporations fairly as you tax us daily! No more fancy accounting like GE and Enron gets away with! Work with real numbers and real dollars. But instead they cook the books to get out of paying their fair share!
Big oil billions of public money per year, the cost to legislate (politicians benefit cuts, no more one day, one term millionaires for life) But every corps. that got bailed out turned profits of billions per quarter (a quarter is only 3 months) GE 3 billion this last quarter of 2010???? but got bailed out... where are the jobs??? where are our divided checks??? We the people our public money right where is our share that the shareholders receive???
I live in the State of Utah. So the Utah IRS office would send me letters they never received my monthly payment. It got so complicated, we ended up taking the money we owe from our 401K to pay off the IRS. So we would not have the headache.
Nice to offer payment plans, but their Accounts Receivable
dept. is Stupid!
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