Owe Taxes But Can't Pay? A Few Options
So far this year, the IRS has processed about 73 million tax returns. Over 87 percent of these have been tax returns where a refund is due. Read my blog on what to do with a tax refund.
With another 70 million or so tax returns that have yet to be filed, I'm guessing that the majority of these folks owe additional tax with their returns. Of course, you can always file an extension and file your tax return later, and something this is a really good thing to do. But what's the deal when it comes to paying the additional tax you owe?
Try to Pay On Time
If you file your tax return (or an extension) on time, but you don't have enough money to pay your taxes in full, the penalty for paying late is 0.5% percent per month, up to a maximum of 25 percent of the amount due on the return. Suffice to say, filing and paying late can get expensive. But if you don't pay at all the IRS will not go lightly on you - they' can commence a collection action to levy your wages and may even place liens on your property for the amount of the unpaid taxes, penalties and interest. Of course, that IRS is finally getting the message that you can't get blood from a stone, and as a result, the IRS is easing up on tax liens.
If You Can't Pay on Time
So what do you do if you can't pay the full amount of taxes due?
Alternatives include seeking a loan from bank or credit union. But if you can't afford to pay the taxes you owe, then you probably are not going to be able to get a loan.
You could ask for a loan from a relative or friend. You could tap a home equity line of credit, if that is available. Current interest rates on home equity lines are low and repayment terms are flexible.
You can pay your taxes using your debit or credit card. Using this option will avoid the IRS penalties for not paying at all but you'll pay convenience fees in the range of 2% to 4% of the amount charged. And if you don't pay your credit card balance in full you could end up paying hundreds of dollars of interest on the balance you carry on your credit card at a rate that is higher than the IRS interest rate for installment payments.
Check back in later in a few days and I'll write about a few of the tax payment options offered by the IRS.
