Short on Tax Money - File an Extension or Pay in installments!

[This post is written and copyrighted by FIRE Finance (http://firefinance.blogspot.com).]

With Tax Day less than 24 hours away, we are either done with taxes or are hurrying to finish the formalities. But what if we don't have enough money to pay our taxes?

The first step is not to panic. If we can’t pay our taxes immediately, we can consider a couple of alternatives:

1. Pay in installments: If we owe $25,000 or less in combined tax, penalties, and interest then we can use IRS's web-based Online Payment Agreement (OPA) or call the number on the bill or notice (have the bill or notice available, along with the social security number) to request a payment agreement. A fill-in Request for Installment Agreement, Form 9465, is available online that can be mailed to the address on the bill. An OPA application allows eligible taxpayers or their authorized representatives to self-qualify, apply for, and receive immediate notification of approval.
   
   We may still qualify for an installment agreement when we owe more than $25,000 in combined tax, penalties, and interest. However in this case, a Collection Information Statement, Form 433F may need to be completed. We can call the number on the bill or mail the Request for Installment Agreement, Form 9465 and Form 433F to the address on the bill.


2. Request an extension of time to file: IRS has entitled us to an automatic six month filing extension for our taxes. To do so we have to file form 4868 by April 15, 2008. This gives us a leeway till October 15, 2008 to file our taxes.
   
   It is to be noted that an extension of time to file is not an extension of time to pay. We've got to pay any taxes we owe by April 15; otherwise, the outstanding tax balance will accrue interest and possibly penalties, increasing the total amount that we owe. If we can't pay the full amount that we owe by April 15, we should pay as much as we can to minimize the interest and penalty charges.

For some reason, if we fail to file our taxes by April 15th and request for an extension, our economic stimulus rebate checks might be delayed as late as December 2008.

We hope that this information will help us in determining a last minute tax filing strategy for 2008. All the best!

Reference(s):

• IRS - Payment Plans, Installment Agreements
• IRS - Last Minute Reminders
  

Image Source(s): iStockPhoto