Can You Afford Your Taxes
Have you planned for your taxes? It’s all too common for people to spend and spend — running up a huge credit card bill right as tax season sets in. Unfortunately, this leaves many blind-sided when their tax refund never comes and instead they’re stuck owing money to good ole Uncle Sam. Even worse is coming to the realization that you can’t pay what you owe.
So where do you go from here? You do have options and the financial experts at Missmoneybee.com have put together a list of steps to take to keep interest and penalties at a minimum.
1. Double check your tax return. Perform a quick review of your taxes because you never know– you could find deductions or credits you overlooked before. Redo your math and make sure you’re taking advantage of every deduction possible, even if they aren’t itemized.
2. Be on time. File your return on time and pay as much as you possibly can along with the return. This can prevent additional charges such a late filing penalty or late payment penalty and will cut down on interest charges.
3. Consider every option. You may not be able to write a check for the full amount you owe today but keep in mind the government will accept payment by credit card, for more about this option visit IRS.gov. If you decide this is your only option, make sure you use the card with the lowest interest. Also, consider reaching out to family members for help or consider taking out a home equity loan. You will be stuck paying some interest but you’ll escape IRS penalties.
4. Adopt a payment plan. Bottom-line the IRS wants their money – so why not consider paying back what you owe over a period of time. Now you will suffer through penalty and interest charges but it’s a much better option than doing absolutely nothing. The interest rate is pretty reasonable at just a mere 3%. If you owe less than $25,000, you can use the IRS’ Online Payment Agreement tool to enter into an agreement. However, if you owe more than $25,000 you’ll have to complete a 9465 Form along with a financial statement form known as a federal 433-F form.
5. Request a collection extension. Qualifying individuals may request an extension of time to pay without incurring a late payment penalty. This option is now available to taxpayers as part of the new IRS’s Fresh Start Initiative. You’ll need to determine whether or not you qualify and be sure to get your application turned in before April 17, 2012.
6. Offer in compromise. If everything else has failed consider an offer in compromise (OIC). This is ultimately an agreement between you and government which allows you to pay less than the full amount owed. Be cautious about this though because there are fees associated with this choice such as a filing fee. The IRS also has extremely strict criteria for OICs, so don’t bank on approval.