Tax Time and You're Short of Cash - What to Do?
Wondering how you're going to afford your tax bill this April? The financial writers at cnnfn.com have put together a nice summary of tax payment alternatives.
Pay as Much as You Can in April
All taxes not paid by April 16 are subject to a penalty and interest. The fees can pile up quickly, so it's best to pay as much as you can up front.
Keep in mind the fact that the IRS is now taking credit cards, and your monthly fee on your credit card bill may be less onerous than the penalties and interest that the IRS will inflict. The IRS accepts MasterCard, Discover, and American Express. You must call one of two payment companies to arrange for a credit card payment of your taxes:
Official Payments Corp. (1-800-2PAY-TAX), or
PhoneCharge, Inc. (1-888-ALLTAXX)
The IRS allows taxpayers who owe less than $25,000 the right to pay on an installment plan for up to five years. You can only pay on one installment plan, so if you are still paying on last year's taxes, you cannot apply for another installment plan.
To request an installment plan, attach form 9465, Installment Agreement Request, to the front of your tax return, and show how much tax you will agree to pay each month. There is a $43 charge for processing the installment agreement and initially there will be a .5% interest charge assessed each month on any unpaid balance. The interest rates drops to .25% per month once the installment agreement is approved.
Offer in Compromise
If you simply can't afford to pay your taxes, the IRS may be willing to accept an Offer in Compromise, which is an agreement to accept a lump sum payment that is less than the total amount of tax due.
It is recommended that you not approach the Offer in Compromise without the help of an experienced professional who can help you with the negotiation process. For more information, see the transcript from a recent AccountingWEB workshop on this program, or plan to attend our workshop on July 17 on the same topic.