Moms

IRS working with people who owe taxes but don't have the money

NEW YORK -- The IRS will make you an offer, and it's one you shouldn't refuse.

If you owe taxes but don't have the money to pay the bill by today's deadline, you'll find some sympathy at the Internal Revenue Service.

"There's a big issue this year with people who can't pay," said Martin Press, a tax lawyer with Gunster Attorneys in Fort Lauderdale, Fla.

The IRS will work with you -- if you take the right steps.

File your return: If you can't pay your tax bill, you'll face penalties and interest charges. The late payment penalty is one-half of 1 percent of any tax not paid by April 15. That translates to a $25 penalty if you owe $5,000. It is charged each month or part of a month the tax goes unpaid, up to 25 percent, or $1,250 on that $5,000. The interest, currently 4 percent, is compounded daily.

The fine for not filing is 5 percent per month, or $250 for $5,000 due. It's also capped at 25 percent.

File for an extension: If you don't have the time to finish your return, file for an extension to avoid the failure-to-file penalty. If you can pay part of your bill, do so, because the charges only apply on the unpaid balance.

Don't borrow to pay taxes: The interest rate on your credit card is likely much higher than the 4 percent interest rate the IRS will charge, so it makes more sense to work out a deal with the government than to charge your taxes.

Set up an installment plan: If you owe less than $25,000, you can request an installment plan at www.irs.gov. You can also print the request form and mail it in. You'll get another chance to ask for an installment agreement if you wait for a letter from the IRS seeking your payment.

There's a $105 fee for setting up the agreement, or $52 if the payments are deducted directly from your bank account. Installment-plan payments are based on what you earn, not how much you owe, Press said. The IRS will work with you on a deal that doesn't bust your budget.

Seek professional guidance: The IRS also offers to settle tax debts for less than what's owed in certain situations.

Press said taxpayers should avoid these deals, called "offers in compromise," until they have discussed them with a tax professional.

  Comments