Options for paying Uncle Sam, even when you lack the cash on hand
There is perhaps no better day than Tax Day – the day federal income taxes are due – to take note of your options for paying them.
You probably know you need to file, because the penalty for failure to do so is significant. As we noted in our March 26 post, it can be up to 25 percent of your tax liability.
But what if you end up owing more taxes than you are currently able to pay?
This can easily happen, even to taxpayers with the best of intentions. Even taxpayers who dutifully had taxes withheld from their checks or made all of their estimated tax payments can end up owing more than they expected.
For some taxpayers, taking out a personal loan may be a viable strategy for coming up with the funds to pay Uncle Sam. Indeed, for taxpayers with good credit, it may even be possible to take out an unsecured loan.
Other taxpayers may need to consider a secured loan in order to use this strategy. A home-equity loan, for example, may be available. But considerable caution is of course in order so that you don’t end up losing your house over a tax debt.
Depending on the amount of taxes you owe, it may make sense just to put them on a credit card. You should be clear from the outset, however, regarding how much interest this is likely to cost you by the time you are able to pay off the debt.
You could also consider making a partial payment. This would enable you to minimize the interest and penalties that get added to your tax debt.
Of course, there are also programs available through the IRS that may make sense for your circumstances. These programs include:
• Installment agreement – paying off your tax bill in periodic payments
• Offer in compromise (OIC) – negotiating with the IRS to resolve your tax debt for less than the total amount you owe
In short, you don’t need to beat yourself up just because you aren’t able to cough up all the cash you need to pay the IRS all at once. There are various ways and means potentially available to achieve income tax compliance.
Source: Forbes, “Don’t Write A Tax Check That Your Bank Account Can’t Cash: Payment Options Are Available,” Kelly Phillips Erb, April 15, 2014