April 17 is just around the corner – a date you may be dreading if you owe income tax and don’t have a clue how to come up with the money. Consumer Reports says don’t panic. There are ways to manage your federal income tax bill that are surprisingly easy.
Hands down, the most important thing, no matter how much you can or cannot pay, is to file your tax return on time. If you don’t, the Internal Revenue Service will charge a penalty of 5 percent of what you owe per month! Plus hefty interest on top of that. 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 your particular financial situation.
The best is to pay as much as you can by the April 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, you’ll pay to set it up and it costs more in interest and penalties depending on the length of the payment terms. There is a 6 year maximum on that.
No matter what agreement you come to with the IRS, stick to it! Or else the IRS considers the agreement null and void and goes after you for the full amount at that point.
You can also file for an extension, but that only gives you a 6-month reprieve from filing the paperwork. You still need to pay by April 17th what you figure your taxes will be in order to avoid incurring penalties and interest.