Owe Taxes? - Options for making payment

When taxes are owed with a tax return, there are several options for making payment according to the IRS.

Send full payment by April 15. If the money is available, send the payment to the IRS by the deadline of April 15. A check or electronic direct debit can be used. This option avoids penalties, interest, and getting future notices from the IRS.

Make partial payment by April 15. If the full payment cannot be made, the IRS site recommends to file the return by the deadline and "pay as much as you can to avoid penalties and interest."

Request a short term extension. The IRS can give extensions up to 120 days to make full payment of taxes owed. Using this option will reduce interest and penalties versus paying through an installment agreement or taking longer to pay. Here's some more information at IRS.gov and the online application for an extension. For those who prefer to talk to someone, call 1-800-829-1040.

Make installment payments. The IRS can set up a payment schedule. Use of this option costs either $52 or $105 depending on the payment method chosen. Form 9465 is used to apply for installment payments. Also, the online application can also be used for installment payments.

Pay by credit card. The IRS accepts payment by credit card. No fee is charged by the IRS, but the credit card company will charge a "convenience fee" based on the amount charged.

Overall, other than paying in full, I think the best option is to request an extension. There is no fee, and the option let's the IRS know the taxpayer is aware of and trying to pay taxes owed. Making a partial payment would be my second choice. However, I would expect an IRS notice for the balance, plus interest and penalties at a future date. Personally, I would avoid using a credit card since it doesn't really eliminate the tax debt. To me , the option just transfers the owed taxes from the government to a credit card company.

For more on The Practice of Personal Finance, check back every Wednesday for a new segment.

This is not financial or tax advice. Please consult a professional advisor.

Copyright © 2009 Achievement Catalyst, LLC