SAN ANTONIO – April 17 is just a few weeks away, but if you owe income taxes and don’t have a clue how to come up with the money, it may be a day to dread.
This is a hectic time for accountants. CPA Alan Rosen said a lot of his clients owe money to Uncle Sam but can’t pay it all at once.
“Their reaction is usually panic. ‘What do I do? I’m in trouble. Help me,’” Rosen said.
No matter how much a person can pay, it’s important to file taxes on time or else the IRS will charge a penalty of 5 percent of what you owe per month, plus a hefty interest rate.
“Also important when you owe money is to face the problem head-on. The IRS has payment plans that may very well help you in a particular financial situation,” Tobie Stanger, Consumer Reports’ money editor.
Experts say it’s best to pay as much as you can by the April 17 deadline to minimize penalties and interest. If you can pay the full bill within 120 days, you’ll still pay penalties and interest on the balance, but there is no IRS fee to set up the plan.
An installment plan is more expensive. Taxpayers will pay to set it up, and it costs more in interest and penalties depending on the length of the term. There’s a six-year maximum on the plan.
Whatever plan you pick, experts say you should stick to it.
“Or else, the IRS considers the agreement null and void and goes after you for the full amount at the point,” said Michael Schwartz, CPA.
Taxpayers can file for an extension, but that only gives them a six-month reprieve from filing the paperwork.