I haven’t logged into TurboTax since the beginning of February, when that big red $1,254 showed up on the screen. I knew I would have a tax bill this year and set aside some money for it every month. I’m not ready to give up that much money yet so I’m holding out as long as possible. But for the sake of argument, let’s talk about the options available when you don’t have enough money for your taxes.

What You Should Do

Look for more deductions.

You could go back through your taxes to find any deductions you may have overlooked. For example, did you know you can deduct the cost of blog templates, virtual assistants, and even the babysitter (if the babysitter watched your kids while you did something work-related)?

Set up a payment plan.

You can delay paying your tax bill in full, but you’ll pay interest (currently 4%) and a late payment penalty (.25%). You can set up payment plan online by using the IRS’ Online Payment Agreement Application as long as you owe less than $25,000 in taxes and fees. Otherwise, you’ll have to file Form 9465, Request for Installment Agreement (you can use this form no matter how much you owe). The installment plan costs $105 unless you agree to have your payments deducted from your bank account in which case it’s $52.

Pay within 120 days.

You have about four months from the time you file before the IRS starts serious collection activity. In the meantime, you’ll get two billing notices from the IRS. Pay your tax bill by the due date of the second notice and avoid paying the set-up fee for a payment arrangement. You’ll still owe interest and late payment fees.

Use your credit card.

If you have enough available credit, your credit card is also an option. The IRS uses third-party payment processors to take credit card payments and beware, you’ll pay a convenience fee that’s anywhere between 1.95% to 2.95% of your tax bill. For me, that'd be $37, which is much less than the fee for the IRS payment arrangement. You’ll also pay whatever interest your credit card company charges you, which is probably four to five times as high as the 4% charged by the IRS. Note: Your card issuer may treat this as a cash advance and charge a higher interest rate. Also, there have been rumors of card issuers canceling credit cards for borrowers who charge their taxes.

Make a settlement offer.

If you can’t afford to pay your taxes in full under any circumstance, you can make a settlement offer via Offer in Compromise. The IRS won’t accept your offer if it believes you can pay your taxes in a lump sum or via a payment arrangement. You can offer a lump sum payment or offer to make monthly payments on a settlement offer.  To make the offer, send Form 656, Offer in Compromise and $150 fee to the IRS.

What You Shouldn’t Do

Don’t file at all.

If you don’t file at all, you’ll be charged a 5% late-filing penalty in addition to interest and late payment penalties. The IRS may file your taxes for you and send you a bill for what they think you owe. Not only that, if you ignore your taxes, the IRS will eventually come after you.

File but don’t pay.

The IRS will send a bill about 45 days after receiving your tax return. They’ll probably kick out another request for payment 45 days after the first one before they begin more aggressive collection actions, like levying your bank account, wages, social benefits or retirement income. If you still don’t pay they may take your physical assets like your car or your house.

The Bottom Line

  • If you can pay now, do it, even if it’s a little inconvenient. Pay what you can now and pay the rest later. You'll lower your interest and late payment penalty.
  • If you can pay within 90 to 120 days, send payment when the IRS sends a billing notice.
  • If you need more time to pay your tax bill in full, set up a payment arrangement with the IRS or use your credit card.
  • If paying your taxes would force you into poverty and put you on the brink of bankruptcy, file Form 1127, Application for Extension of Time for Payment of Tax Due to Undue Hardship

Disclaimer: I’m not a tax professional and this is not professional tax advice. See your accountant or tax attorney for professional tax advice.

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LaToya Irby is a full-time freelance writer and a graduate of the University of Alabama. She primarily writes about personal finance, freelancing, and other self-employment topics.