With tax season underway, one of the questions that many people ask is this: What if I can’t pay my taxes?
I know the feeling. When I first started freelancing, I didn’t know about quarterly estimated taxes or the realities of the self-employment tax. I ended up with quite the gut-punch when I saw how much I owed. While I was fortunate enough to be able to raid the emergency fund to take care of the bill, not everyone is so lucky.
You should do something when taxes are due, since ignoring the problem only makes it bigger, with penalties piling on, making the tax bill even more unaffordable. If you can’t pay your taxes, it’s possible to borrow to meet your obligation. After all, the IRS does accept credit cards, and it doesn’t care if you get the cash from a pay day loan place.
But before you turn to these high-interest options -- or even before you try to get a personal loan from your bank -- it’s worth understanding that you can actually get a loan from the IRS to help you pay your taxes.
IRS Installment Payments
If you can’t pay your tax bill, the IRS will allow you to apply for installment payments. You can even do it online if you owe less than $50,000 in taxes, interest, and penalties. Signing up for an installment payment plan amounts to getting a loan from the IRS, however.
Just as with any loan, you will be charged a setup fee for this loan, and you will pay interest. For the most part, though, the interest you pay is competitive with bank loan rates, lower than what you see with credit cards and much lower than what is charged for pay day loans. Plus, it’s easier to get a loan from the IRS than it is to get one from your bank or credit union.
Another option, if you don’t want to go the IRS installment payment route, is to get a loan from your peers. In some cases, the costs with a P2P lending site are lower than what is offered from the IRS. But you have to have very good credit and secure the necessary funding in order for this route to be effective.
You could get a loan from a friend or relative, though. If you have a loved one willing to loan you the money for little -- or even no -- interest, that can be an even better idea.
No matter what you do, though, you need to get the money together quickly if you want to avoid problems with IRS.