Dealing with the Tax Man: Filing Federal Taxes

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April 15 is drawing near, and you're in a panic. You owe income taxes to Uncle Sam, but you don't have enough money in your bank account to pay. What to do, what to do? Here's what not to do: Don't bury your head in the sand! It'll cost you, big time!

At the very least, file your tax return on time, or file IRS Form 4868, "Application for Automatic Extension to File," which gives you until October 15 to get your return to the IRS. You can download the extension request form at www.irs.gov/pub/irs-pdf/f4868.pdf, order it by calling 800-829-3767, or pick it up at your local IRS office.

An extension to file your tax return is not an extension to pay your taxes. Taxes are due on April 15, come hell or high water, and the IRS begins charging interest and penalties on your unpaid taxes on April 16. For this reason, paying some of your taxes on April 15 is better than paying nothing. The more you pay, the less your tax debt will grow because of interest and penalties.

If you don't have enough money in your bank account to pay all the taxes you owe by April 15, you may want to consider using one of the following options to get them paid. Each of these options can be costly, so try to avoid them unless all your other options are worse. Consulting a tax specialist, such as a CPA, enrolled agent (someone licensed by the U.S. Department of the Treasury as a tax specialist, commonly referred to as an EA), or other financial advisor about these options is also a good idea.

• Pay with plastic. You have to pay a fee of about 2.5 percent on the amount that you charge to the IRS. And, of course, if you don't pay the full amount of your tax debt when you receive your account statement, you pay interest to the credit card company.

  Don't assume that you can pay your taxes with a credit card, declare bankruptcy, and make the debt disappear. If you file for bankruptcy before you've paid off your tax-related credit card debt, the bankruptcy court treats the debt exactly the same way it would treat your taxes if they were still outstanding. In other words, if the taxes would be dischargeable in bankruptcy, you'll be able to use bankruptcy to get the credit card debt discharged. However, if the taxes cannot be discharged in bankruptcy, you cannot use bankruptcy to get rid of that portion of your credit card debt.

• Use a credit card convenience check. This option is relatively expensive because you probably have to pay a fee to the credit card company for the privilege of using the convenience check. Plus, if you can't pay off the amount of the check right away, interest accrues.
• Borrow against your home equity. The good news is that the interest you pay on the borrowed money is probably tax deductible. The bad news is that if you can't repay the borrowed money, you may lose your home.

A professional advisor may suggest that you're better served paying what you owe in installments to the IRS than paying installments to your credit card company. An advisor may even recommend that you try to settle your debt for less than the full amount through an Offer in Compromise.

This article was authored by Ted Benna, Stephen R. Bucci, James P. Caher, John M. Caher, N. Brian Caverly, Peter Economy, Jack Hungelmann, John E. Lucas, Sarah Glendon Lyons, Margaret A. Munro, Brenda Watson Newmann, Mary Reed, Jordan S. Simon, Kathleen Sindell, Deborah Taylor-Hough, John Ventura.