Every year, the deadline for Americans to file taxes is April 15th (unless the day falls on a weekend, then the deadline will be extended by a few days). Yet, year after year many Americans scramble to pay their tax bill. Even if you file a tax extension online you are still responsible for paying what you owe on April 15th. Interest on your balance begins accruing on April 16th. If you know you are going to owe and you do not have money to pay, there are a few things you can do to lessen the financial burden.
First Things First
Even if you don’t have the money to pay your taxes, try to file the return on time. You will be charged 5% for each month you file late. You will be charged .5% for each month that you pay late. Mathematically, it is better to file and pay late rather than file late AND pay late.
Pay as much as you can when you file. This will lower your overall penalty payments because there will be a lower balance to apply the penalty APR to.
Ways to Pay Your Tax Obligation
In general, paying your tax obligation when you file your return is the best way to go. If you don’t have the money to do that, consider these alternative ways to pay, which may be cheaper than paying interest to the IRS.
Pay by credit card. You will incur a convenience fee for paying by credit card (currently a little more than 2%) and you will still be required to pay the credit card balance, but the credit card minimum payment may be smaller than what you would have to pay the IRS monthly, and the interest may also be lower.
Pay by bank loan. You can apply for a loan through your bank to pay your tax obligation. Again, the interest rate may be lower, but the monthly payment will be higher than what you pay on your credit card (though you will pay off the entire loan faster than if you paid only the minimum on the credit card).
Borrow from a friend or relative. Though the least ideal of repayment methods because of the potential implications to your relationship, if you agree to draw up a contract stating how much you are borrowing, the interest rate you will pay and how much you pay monthly, this may be an option to pay your IRS tax bill. Just be sure to have it signed by a notary public and meet your monthly obligation religiously.
If you find that you owe more to the IRS than you are able to pay, it may be better to look for alternative ways to pay your tax bill so you can pay on time. If you can’t use alternative sources to pay on time, you may be able to negotiate with the IRS to set up an installment plan. However, it is best to file your taxes on time and pay what you can to limit your overall penalty obligation.
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