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OPTIONS FOR PAYING YOUR TAXES
Tax season is the middle of April. It is important
that you either file your return on time, or ask for an
extension prior to the due date. Not paying your taxes
will result in big penalties.
Not filing on time will result in your having to pay a
5%/month penalty. Meaning, for each month you don't
file, you are going to be charged an extra 5% of your
total tax obligations. There is a 25% cap though. Once
the cap is reached, the 'failure to pay' penalty will be
0.5%.
Below are some options for paying your taxes.
Paying with a Credit Card
There are two companies that have recently began
processing tax payments via
credit cards. As a result, you can use your American
Express, Visa, Discover or MasterCard and reap the
benefits of your card's
rewards when settling your tax
debt. Payments can be made over the phone or via paper
checks issued by your credit card company.
Even though paying with your credit card seems like a
great fix. You will be charged a fee by the processing
company. Typically, this fee is 2.49% of your tax bill,
or a minimum of $1. Therefore, if you have a tax bill of
$5,000, you are going to have to pay a fee of $124 for
paying with a credit card.
Keep in mind that the longer it takes you to pay of your
credit card bill, the more you are going to end paying
in interest. Check out the
credit card total interest calculator.
If you have bad credit, we suggest checking out the
Orchard Bank Card. Those with decent-good credit
should consider the
American Express Blue Card.
Utilizing the Equity from your Home
Homeowners should consider
applying for a home equity loan for settling taxes.
These types of loans are great if you owe a lot, and are
looking to free up cash for some additional expenses. Do
you have enough equity in your home? Learn what you can
do to
build more equity.
Equity loan closing costs can be high. So, you need
to evaluate if this route is your best option for paying
taxes. Learn more about the
dangers of home equity loans.
Develop a Payment Plan
If the amount you owe in taxes is more than the
available credit line offered by your credit card
company, and you are either a renter or a homeowner with
no equity, you can look to tailor a payment plan with
the IRS. You are entitled to three years for paying off
your balance. You can also choose the amount you are
going to pay and when. In order to enroll, you must
return form 9465 with your tax return.
Negotiating a Deal
If you are unable to pay with a credit card, or your
home's equity, and a payment plan is not an option, you
will need to contact the IRS to try and develop an
'Offer in Compromise', otherwise known as an OIC. An OIC
is one lump sum payment that is going to be for a lower
amount than your original tax debt. The IRS develops
these plans because they would rather get paid instead
of having to pay the costly fees associated with having
to send your account into collections. Also,
accounts in collections will damage your credit.
This option should be a last resort. Keep in mind that
not everyone that applies for an OIC gets approved. You
must be able to prove that you have no way of paying
your tax bill in order to be even considered for
approval. Your current and potential future income
situations will be evaluated by the IRS.
Two separate forms must be filled out if you want to
attempt OIC:
Form 656, Offer in Compromise and
Form
433-A, Collection Information Statement. There is a $150
application fee for submitting the
Form 656-A. This fee
can be waived if you have little or no income.
You can learn more about what options you have if you
have
trouble paying taxes.
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