This past weekend I did my taxes and found out I owe Uncle Sam a nice chuck of change. Thankfully, I prepared for this by stashing away money. If you find yourself in this predicament without any savings, I share five tips to pay off your tax bill below.
- Take a deep breath and face the situation head on. Avoiding your tax bill will only lead to penalties that will end up costing you more in the long run. The IRS can also go after your assets and wages if you attempt to avoid them.
- Filing an extension is not the solution. An extension only extends the time to file your tax return and not the time to pay your taxes.
- Figure out what payment options are available to you. You can set up an installment plan with the IRS, or you can pay using a credit card – but it will cost you! You’ll have to pay interest with both options. Make sure to do the math to see which will cost you less. There is also a $43 fee when entering into an installment plan with the IRS. Another option to consider is borrowing money from a relative or friend.
- Buy yourself some time. Pay as much as you can when you file and then wait till the IRS sends you a bill. Keep in mind that interest and penalties continue to accrue on the unpaid balance, but if money will be coming in soon, this may be the option for you.
- Settle with the IRS. This option may save you a lot of money, but it will take time and there is a $150 fee. Along with an application, financial statements and other paperwork must be turned in. This option is not for haggling a lower tax bill, but to come up with an agreed amount to pay.