Monday, April 10, 2006

Can't Pay Your Taxes? Ignoring it is NOT the Answer

Category: Tax Law and Planning

We talked about what happens if you aren't ready to file by April 15th (17th this year), but what if you can't pay your taxes?

Don't ignore your tax obligation - it won't go away. In fact, it will just get larger, with the addition of interest and penalties.

The penalties for failure to file are seperate from the penalties for failure to pay. So even if you can't pay, you should file your return (or an extension as discussed earlier this week in _---) and address the payment issues seperately.

From Rubin on Tax: WHAT IF YOU CAN'T PAY YOUR INCOME TAXES BY APRIL 17?: "Here are some ideas to avoid the penalties (and interest, if the tax can be paid):

a. Borrow the tax payment from friends or family.

b. Bank loans (including home equity loans).

c. Credit card payment (where allowable by the credit card issuer). However, these providers charge a 2.49% fee, plus their usual interest.

d. Request an installment payment agreement from the IRS (using Form 9465). There is a $43 fee for these agreements. Interest is still charged on the unpaid tax, but the late payment penalty is reduced by 50% if the return is filed by the due date (including extensions).

e. Possible qualification for a 120 day extension to pay, or a payroll deduction installment agreement with the IRS. "


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