One more day to pay your taxes. What if you don't have the money?
As tempting as it would be to ignore the tax bill and hope the Internal Revenue Service won't notice, that's the worst thing you can do.
"Eventually, they are going to catch up to you and send you notices, asking, 'Where is your tax return?' " says Maureen McGetrick, a tax partner with BDO Seidman in New York. "After a period of time, they will file your tax return for you, input your income, tax and interest. And send you a bill."
That's a situation you don't want to be in. If you're having trouble, be pro-active.
The first step is to file your federal return - or request an extension to file - by the tax deadline and send in as much money as you can. This way you'll avoid an onerous penalty for failing to file that's equal to 5 percent of the unpaid tax each month, up to a maximum of 25 percent, says Bob D. Scharin, senior tax analyst with Thomson Reuters' Tax & Accounting business in New York.
If you file on time but can't pay your bill, the consequences are less severe. You'll owe a milder failure-to-pay penalty of 0.5 percent a month - up to 25 percent - plus interest at a rate that adjusts quarterly, Scharin says. Right now, it's an annual rate of 4 percent.
You can request an automatic extension to file your return through the IRS Free File site at www.irs.gov or by submitting Form 4868. Your return will be due Oct. 15. An extension means you have extra time to file but not more time to pay. You'll still owe interest and possibly a penalty.
You have several options to find the money to pay the bill. They all have consequences, and you need to compare the cost of each to determine which is the least expensive way to pay the taxes.
Among the options:
* Beg or borrow. See if friends, family, a credit union or bank will give you a personal loan to cover the tab.
* Consider tapping the equity in your house to pay the bill through a home equity loan or line of credit. The interest paid on these home loans is tax-deductible, Scharin says. Granted, this type of credit is harder to come by these days.
* Borrow from a 401(k), where you will end up repaying the loan with interest to yourself. But this has risks. That money won't be invested, and you could lose out if the market suddenly rebounds. And if you lose your job, you usually have to quickly repay the loan, otherwise it's considered a distribution. You must pay regular income tax on a distribution, and possibly an early withdrawal penalty.
