You may have heard horror stories from people who owe back taxes.
How can you reduce the odds this will happen to you? File your taxes on time, no matter what, the U.S. Internal Revenue Service advises.
Even if you can’t afford to make the full payment that you owe, it’s worth your while to file on time. If you wait to file until May or later you’ll have to pay a 5 percent per month penalty on top of other penalties.
The yearly interest rate on unpaid taxes is 6 percent. Late payment penalties are another 0.5 percent per month. These can add up quickly.
Here’s the IRS link to set up an Online Payment Agreement, so you can pay your taxes in installments: www.irs.gov/individuals/article/0,,id=149373,00.html. When you do this, you reduce the late payment penalty to 0.25 percent per month. Ideally you’ll want to pay your taxes in full. If you decide to take out a loan to pay your taxes make sure you compare interest rates so you’re not paying more than you would with the standard government options.
April 7, 2008