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Can’t Afford to Pay Your Taxes Now?

February 16th, 2011 · blog, Guest Post

This guest post is brought to you by the Tax Pros at H&R

Any taxpayer who is unable to pay his or her tax bills should still complete a return or file a tax extension by April 18, to avoid costly penalties and interest. The monthly penalty for not filing a tax return is 5%, while the penalty for not paying in full is one-tenth of that, or 0.5%. Even if taxpayers cannot pay all of their taxes, they should send what they can with their tax return or extension to file.

Tax payment solutions close to home

  • Borrowing money from a 401(k) – no early distribution penalty and you the taxpayer would pocket interest paid for the borrowing rather than paying interest to a 3rd party lender.
  • Accessing funds using a credit card, but you often face double-digit interest rates and must pay IRS service providers’ processing fees ranging from 1.90 to 2.35%.
  • For some taxpayers, the best bet may be borrowing money from family or friends.

Working with the IRS
Taxpayers can work with the IRS to file a tax extension to pay or to arrange an IRS tax payment plan. Interest rates and fees depend on the route taxpayers choose.

  • Taxpayers who can pay their debt within 120 days can file a tax extension. If a $1,000 tax debt is owed, the total amount paid over four months would be $1,033* with penalties and interest.
  • Those who need more than 120 days can use an IRS tax payment plan. If a $1,000 tax debt is paid off in six months, the total amount paid would be $1,066**. Tax debt must be repaid within five years through an installment agreement.

Taxpayers who file a tax extension or opt for an IRS tax payment plan may incur debts on their credit reports, but these debts do not cause the same harm as a property lien.

A professional tax advisor can help you with any tax questions and determine what’s best for you. You can get a free 30-minute tax consultation at an H&R Block office near you.

For those with financial hardships

  • An IRS offer in compromise (OIC) settles a tax debt for less than the amount owed. The IRS will negotiate with eligible taxpayers to collect what it can. However, only 24 % of OICs were accepted in FY 2008, and the application process can take up to two years.
  • New this year, the IRS weighs present and future earnings when deciding OICs, instead of just prior years’ earnings.
  • Taxpayers must be current on filing tax returns, not in bankruptcy, and meet one of three conditions to be eligible:
    1. Taxpayer’s assets and income combined equal less than tax debt owed.
    2. Taxpayer believes the tax debt assessed is incorrect and there is no legal decision on the matter.
    3. The full tax debt is owed and is collectible, but a special circumstance exists, such as serious illness or the likelihood to deplete finances.

H&R Block has a 100% accuracy guarantee and will support you in the unlikely event of an audit when they do your taxes or when you use H&R Block online tax prep software at home.


2 responses so far ↓

  • 1 World Spinner // Feb 17, 2011 at 6:22 am

    Can't Afford to Pay Your Taxes Now? | Millionaire or Bust…

    Here at World Spinner we are debating the same thing……

  • 2 Jenell Boch // Mar 15, 2011 at 9:05 pm

    Dude.. I am not much into reading, but somehow I got to read lots of articles on your blog. Its amazing how interesting it is for me to visit you very often. –

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