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Tax Mondays:What to Do When You Owe Money to the IRS

Posted by: Reyna on Mar 1 2011 / Comments (0)

iting to file your taxes because you can’t pay the bill? If you owe the IRS money, you are actually part of the minority: according to the IRS, nearly three-quarters of taxpayers received refunds in the past two years.

But don’t panic. “The world isn’t ending because you owe taxes,” says Jim Sharvin, a CPA in Torrance, California. In fact, the IRS would loan you the money to cover your tax bill, he says. “It’s your instant loan approval company.”

But before you think about payment plans or loans from any other source, focus on filing on time. Failure to file your tax return or file for a six-month extension can cost you a penalty of 5% per month up to the first five months.

For example, if you owe $2,000 and you’re a month late, you just cost yourself $100. That’s equivalent to a 60% annual interest rate! And that’s without the additional government interest rate, currently at 4% plus the .5% failure to pay fee that both start accruing on tax filing day, which this year is April 18th.

There are limited exemptions, such as active duty military if serving overseas, certain natural disasters or medical conditions. If you have an extreme circumstance for not filing on-time, contact the IRS to appeal late fees.

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