If you owe tax with your federal tax return, but can't afford to pay it all when you file, there are several options to help you keep interest and penalties to a minimum.
Here are five tips:
1. File your return on time and pay as much as you can with the return. These steps will eliminate the late filing penalty, reduce the late payment penalty and cut down on interest charges. For electronic and credit card options for paying, visit the IRS's website. You may also mail a check payable to the United States Treasury.
2. Consider obtaining a loan or paying by credit card. The interest rate and fees charged by a bank or credit card company may be lower than interest and penalties imposed by the Internal Revenue Code.
3. Request an installment payment agreement. You do not need to wait for the IRS to send you a bill before requesting a payment agreement. Options for requesting an agreement include:
· Using the Online Payment Agreement application on the IRS's site
· Submit IRS Form 9465-FS, Installment Agreement Request, with your return
The IRS charges a user fee to set up your payment agreement.
4. Request an extension of time to pay. For tax year 2011, qualifying individuals may request an extension of time to pay and have the late payment penalty waived as part of the IRS Fresh Start Initiative. To see if you qualify, visit the IRS's site and get form 1127-A, Application for Extension of Time for Payment. But hurry, your application must be filed by April 17.
5. If you receive a bill from the IRS, please contact the agency immediately to discuss these and other payment options. Ignoring the bill will only compound your problem and could lead to an IRS collection action.
If you can’t pay in full and on time, the key to minimizing your penalty and interest charges is to pay as much as possible by the tax deadline and the balance as soon as possible.