In a tough economy, doing taxes can be a nightmare.
Maybe last year you lost your job, became self-employed, or had to cash out retirement accounts early to survive.
You didn’t withhold enough taxes from your paycheck or pay enough estimated taxes last year.
Consequently, you’re stuck with a large tax bill.
If you can’t pay your taxes in full by April 15, what can you do?
Here are a few options and take a deep breath. You’ll be OK.
1. File by April 15th.
No matter what, file your taxes on time, even if you can’t pay the full amount. There will be stiff penalties if you don’t file your taxes on time.
Even if you request an extension to file taxes, you still have to pay 90% of what you owe by April 15.
2. Borrow Money.
Can you borrow money from family or friends? This may not be an option for everyone.
Whatever you do, don’t get a payday loan or high interest online loan. It will make your problems worse. There are better solutions.
3. Pay with a credit card.
Credit card interest rates can be as high as 20% or more. Use this option with caution.
4. Request an installment agreement from the IRS.
The IRS allows an installment agreement once every 5 years. If you paid your taxes in full the past 5 years, owe less than $50,000, and you can pay in full within 120 days or less, you can apply for an online payment agreement.
There will be a fee of $120 for a standard agreement. If you pay by direct deposit, the fee drops to $52. If your income is below a certain level, then it’s $43.
You will also pay interest. Check IRS.gov for the current interest rate and for more info. It’s not as high as you think though.
If you go with this option, pay the most that you can by April 15th. Then figure out what you can afford to pay each month. After you apply, you will hear from the IRS within 30 days.
5. Offer in Compromise
For those who don’t qualify for an installment agreement or other payment alternative. It lets you settle your tax debt for less than you owe. Go here for more info.
6. Adjust Withholdings
If you owed money this year on taxes, it’s time to adjust withholdings on your W4 form from work. You may need to have more money taken out from your paycheck so you don’t owe a large amount next year.
If you’re self-employed, then think about putting more into estimated taxes.
Check out the IRS’ Eight Tips for Taxpayers Who Owe Taxes.
Disclaimer: I am not a tax professional. This is not tax advice. Please consult a tax professional or the IRS for more info on your specific situation.