Monday, March 30, 2009

30-Day Economic Stability Challenge: Fear not the IRS

Ugh. Taxes. This year especially, when there's so much financial turmoil, the last thing many of us want to do is turn over any money to the IRS. But it's our civic duty, if we want potholes filled, teachers paid, or any other public service on which you may not realize you rely.

I'll be the first to admit it: I don't have the money to pay all my taxes on time this year. I earned quite a bit more last year and didn't save more to compensate. If you're in that boat with me, I want to encourage you to reach out to the IRS.

They aren't as scary as you think. Or at least they don't have to be.

I have friends who have made good on years of unpaid taxes, and they did it all by calling and going down to the local branch of the IRS and talking with the nice folks there.

Just like any other creditor, all they want is their money, and they will work with you to get it however they can. Here are your options:

File for an extension
I wouldn't be surprised if a record number of people do this this year. By filling out form 4648, you can automatically extend the date by which you must file your tax return.

The downside: You'll have to pay interest and penalties on the money you don't pay now, so be prepared to cough up more.

Pay what you can
If you owe $2,000 but won't have it for a few months, you can pay, say, $500 by the 15th. Then, in a few months, you'll get a big scary letter from the IRS informing you of how much you owe and pay the rest then. If you can't pay it all then? Pay what you can and wait for another bill. Or get a payment plan.

The downside: You'll get a penalty, but it won't be as hefty if you don't file at all.

Sign up for a payment plan
This is so easy it's silly. I did this two years ago. Online. In 10 minutes. And it was over with. You can name how much you pay, and have it automatically withdrawn from your account. And you may not know it, but you don't have to pay a lot monthly for them to accept it. I paid $30 a month till it was paid off, but it wasn't a burden on me and I always knew I could meet the bill.

The downside: Again, interest and penalties.

Put it on your credit card and file for bankruptcy
My accountant told me this option as a joke (I always emphasize with him that I want all my options, no matter how far fetched). But it it a legitimate option the IRS even acknowledges--the paying with credit part, not the bankruptcy part.

The downside: With the IRS, you'll pay interest and penalties, but they won't approach the 15-25 percent interest some pay on their credit cards. You're way, way better off signing up for a payment plan if you're strapped.

Have you found more creative ways to pay your taxes? Let me know and I'll feature you!

Photo by Mat Honan.

1 comment:

Shanna Freeman said...

Excellent post. If I hadn't had some hefty medical deductions for last year, I would've owed more than I did to the IRS. Luckily I could afford to pay it by the 15th.

However, I am worried about being able to save enough this year to make my estimated quarterly payments. This aspect of freelancing is part of what has scared me from going full-time, so I appreciate articles like this.