Tax time is stressful for most Americans, but even more stressful if you can’t afford to pay what you owe right away. Thankfully, there are several options available to you to help you ease the burden this year. You will be able to pay your taxes and save yourself stress and penalties, so you can focus on other things that are more important.
Credit Card Payments
Did you know that the IRS accepts payments via most major credit cards? These credit cards payments are processed by approved third-party vendors. This is helpful if you don’t have a lot of cash on hand. In addition, if you act quickly, you can find a credit card that offers a zero percent introductory interest rate so you can pay off the bill without paying any additional interest. However, the credit card payment processors do levy a payment fee of up to 3%, which is deductible on your next tax return.
Another way to come up with the cash to cover your tax bill is to refinance your home or take out a home equity loan. You can also take out a personal loan if you don’t have a home or have no free equity in your home. A loan is not an ideal option, but it may be the best for your situation. It will also help you avoid hefty penalties and fees that come with being late in paying your taxes.
The IRS also accepts payment plans. The key to getting set up on an installment plan with the IRS is to file your taxes as early as possible. If you put it off until the last minute, they have less room to work with you. Then contact the IRS directly to discuss payment plan arrangements. If they have to hunt you down, they will be much less willing to help you out. Keep in mind that there are certain requirements you have to meet for this option, and it does include penalties and interests in your payments. In addition, if your tax debt is more than $10,000, the IRS may still file a tax lien even though you are making payments.
The IRS does grant extensions of up to 120 days in some cases. However, these extensions are very difficult to get, and there is a lot of paperwork involved in the process. While it’s possible, it’s not likely, so keep working other options while you are waiting for extension approval.
Offer in Compromise
If you can pay some of your tax debt but you can’t cover the entire bill, you may petition the IRS for an Offer in Compromise. For a filing fee of $150, you can settle your tax debt for a lower amount if it is determined that you can’t pay the full amount, that paying your debt may cause undue financial burden, or that there may have been an error in determining what you owe.
There are options for you if you can’t pay your taxes immediately. The key is to be pro-active and handle your taxes right away. This gives you more leverage to achieve a favorable outcome.