Finances And Money

Now that you have filed your taxes you can breathe a little bit easier. Unfortunately for most of us it doesn’t end there. We may think that filing is the hardest thing to do, but once you file and you notice that you have to pay out to the IRS you begin to panic. Sometimes paying out isn’t too bad. Some of you will only have to pay back $200 while others will have to pay back as much as $1500. For those of you who have to pay back a large amount don’t panic! There are many different types of payment methods that can help you pay it off.

“If you’re feeling crunched for money, it may help to know you’re not alone: Even his high-net-worth clients on occasion are stretched thin when it comes to paying their tax bills, said Dan Yu, a certified financial planner and senior manager in the personal wealth advisers group at Eisner LLP, an accounting firm in New York. “Interestingly enough, these issues do come up. We here at Eisner will negotiate on the client’s behalf when there are real reasons why [taxes] weren’t paid on time or they’re disputing an item,” he said.

Those negotiations are often successful, he said, though the IRS is getting a bit less flexible in its willingness to work with taxpayers. You can always try, said Francois Hechinger, a tax partner in the San Francisco office of BDO Seidman. “Call the IRS and let them know what’s going on. Talk to an agent,” he said. “If you call them, they’re usually pretty willing to work with you.”

One payment option is to negotiate an installment agreement with the IRS. If you owe less than $25,000 and are able to pay your full bill over time, it’s often possible to get the IRS to agree to an installment arrangement. But you’ll have to do the math to compare the cost of an IRS installment agreement with the cost of using your credit card.

The IRS is currently charging an interest rate of about 8% (this rate fluctuates quarterly), and there’s a possibility the IRS will charge a late-payment penalty as well (usually 0.5% per month), though taxpayers can sometimes negotiate to get this penalty waived. If you have a credit card with a lower interest rate, it may make sense to use that instead, Detweiler said. But, while you’re comparing interest rates, don’t forget to include the various fees. An IRS installment agreement costs $43, while the online tax-bill payment processors charge a 2.49% fee. On a $2,000 tax bill, that’s $49.80.

There’s another option: Mailing your payment via one of the checks your credit card company provides, again, compare the interest rate and the fee charged for using that check. Keeping things friendly You may want to use your credit card to avoid any negative interaction with the IRS. “If it’s close, I would probably go with the credit card. Then you have a clean slate with the IRS,” Yu said. And, Detweiler said, on occasion the IRS files a federal tax lien even if you have an approved installment agreement in place.

“The interest rate isn’t bad and the fee’s not terribly onerous, but what isn’t always clear to consumers is, even if it’s approved, [the IRS] may file a notice to secure a lien,” she said. “You may propose an installment agreement and end up with a tax lien on your credit report,” she said. Before seeking an installment agreement, check with the IRS that it won’t file a lien.

If you decide to pay your taxes with plastic, there are more options this year. Link2Gov, the Nashville, Tenn.-based operator of Pay1040.com, earlier this year introduced IncomeTaxPayment.com, where taxpayers can pay their tax bill with a PIN-based debit card. At the company’s other site, Pay1040.com, taxpayers can use a credit card to pay their taxes.