|Question: I don't have the cash to pay my taxes. What can I do?|
If you don't have the cash to pay your taxes and are unable to borrow the money from a relative or friend, you still have a few options. You can pay by credit card, ask for a short-term extension, propose an installment payment agreement or an offer in compromise to the IRS, or declare bankruptcy if you qualify. If you ignore your tax bill entirely, not only will interest and penalties accrue, but the IRS's tax enforcement and collection powers include the ability to record liens on your property and levy to secure or satisfy such liens.
If you're short on cash, you can pay your taxes with a credit card. This will allow your tax bill to be paid on time. Therefore, you'll avoid penalties and interest for late payment of taxes. However, the interest rate that the credit card company charges may be higher than what the IRS charges on late payments. You can make credit card payments through certain tax software programs or by calling (888) 272-9829. A fee may apply.
A short-term extension will give you up to 120 days to pay. No fee is charged, but a late payment penalty plus interest will apply.
An installment agreement is a monthly payment plan with the IRS. You enter into an installment payment agreement by informing the IRS that you are unable to make full payment of taxes. Your tax liability may be spread out over three years, and payments can be made through payroll deduction. You will generally be expected to pay the maximum installment amount that you can afford. You will not avoid interest and penalties with this payment method, but you will avoid more severe collection action. A one-time fee is charged to establish the installment agreement.
An offer in compromise is a negotiated settlement between you and the IRS, whereby the IRS agrees to accept a lesser figure from you in full satisfaction of your tax debt. You must meet certain criteria to qualify for offer-in-compromise treatment. Generally, an offer will not be accepted by the IRS if the IRS believes that the liability can be paid in full or through an installment agreement.
Bankruptcy is a way to resolve your debts when you are unable to pay them. Many taxes cannot be discharged in bankruptcy; however, bankruptcy will suspend most collection activities by the IRS. In addition, reducing your overall debt burden by eliminating unsecured debt (such as credit card balances) through bankruptcy can make more money available to pay your IRS tax bill.