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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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