The annual tax filing deadline for Americans consistently lands on April 15th, with a slight extension if this date falls on a weekend. Despite this regular timeframe, many Americans find themselves rushing to settle their tax bills every year. Even if you file a tax extension online, you’re still obligated to pay your dues by April 15th. From April 16th onwards, interest starts to accumulate on your outstanding balance. If you’re struggling to pay, there are several steps you can take to alleviate the financial strain.
Primarily, file your return on time, even if you’re unable to settle the bill. Late filing incurs a penalty fee of 5% per month, while late payment charges you 0.5% per month. Thus, it’s financially more sensible to file on time but pay the bill late rather than filing and paying late.
Attempt to pay as much as you can when filing. This tactic reduces your penalty expenses, as your outstanding balance, to which the penalty annual percentage rate (APR) applies, will be lower.
Settling your tax obligation upon filing is typically the most financially efficient method. However, if finances are tight, here are a few alternatives to ponder:
1. Credit Card Payment: Paying with a credit card incurs a convenience fee of more than 2%, but the minimum payment and interest may be lower than making direct payments to the IRS.
2. Bank Loan: Procuring a bank loan might entail lower interest rates, although monthly payments will be higher than credit card ones. Nonetheless, the loan will be repaid faster than only making minimum credit card payments.
3. Borrowing from Acquaintances: The least preferable option due to potential relationship strains. Yet, if a contract outlining borrowing amount, interest rate, and monthly payments is agreed upon, this approach might work as a last resort to settle your tax bill.
If you’re unable to fully cover what you owe the IRS, considering these alternative payment methods can be beneficial. If these aren’t feasible, negotiating an installment plan with the IRS might be an option. Always prioritize filing your taxes on time and paying as much as possible to minimize lots of penalty fees.
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