With April 15 right around the corner, there are millions of people on the hunt for extra cash to help cover there tax bills from 2015. Some options will make financial sense, and others could put you in a bigger financial hole. Your first step towards fixing this problem is to tackle it head on, you have 2 months from Sunday to get a plan of attack in order.
First, don’t avoid filing. The penalties and interest for not filing will make your situation worse.
• Don’t charge it. As tempting as that might be, it will cost you dearly. First, there are add-on processing fees and set-up fees. The government has special firms that handle credit card payments for taxes. These firms charge a standard 2.49% convenience fee. When you add in standard credit card interest rates, you could be adding to the cost of your taxes significantly.
• If you can afford to pay some now and more later, consider setting up an installment plan with the IRS. The IRS charges $43 to set it up, and you’ll pay interest and penalties, too. The IRS interest rate is now 7%, and a 0.25%-a-month penalty means you’ll basically be paying 10% on the debt (if you file on time). You can set up and installment plan by filing form 9465. And, you can propose your monthly payments. If you owe $10,000 and pay it off in less than three years, you could save close to $1,000 over paying by credit card.
• Liquidate a savings accounts, savings bonds, stocks, etc.
• Borrow from a family member.
• Take out an equity loan in real estate you own.
• Qualify for a personal loan.
Remember – don’t avoid filing.
If you are able to make a good faith payment and have the ability to repay the taxes in four months or less, filing for a short term extension may be your best financial option. If you have major concerns or need help, we suggest meeting with a professional tax advisor for help.