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Preventing a Last-Second Tax Disaster

April 15, 2009

By Clark Schultz | Money Rates Columnist

Today is a day of panic for millions of Americans. Today is April 15th or "Tax Day". For households who are just now realizing that their checking account or savings account lacks the funds in it to pay their tax bill, viable options remain. What you can't do is procrastinate and not file your return. If you don't have the money to pay your tax bill today here are some options:

(1) Borrow - It's pretty late in the day to formalize a loan, but you can use social lending sites to formalize loans with friends, family, or even strangers to come up with the money to pay your tax bill. Social lending sites allow borrowers to set up the parameters of their loan and will track repayments to lenders. Setting up a loan can be done quickly and securely. Even better, the rates from social lending sites can also be very competitive. It's never fun to ask to borrow money, but a social lending site will make it easier.

(2) Credit Card - The IRS will allow you to make a payment on your tax bill with a credit card through authorized payment processing companies. The payment is processed immediately and efficiently, but you will be charged a 2.49% fee based on the amount of your tax bill. Of course, you will also have to contend with the credit card balance remaining on the account and getting charged interest as well. Some credit cards will offer rewards for all purchases (including tax bill payments), so it is important that you pick the credit card that offers you the best rebates, cash-back, rewards, or gifts for making payments.

(3) Installment Plan - You can tell the IRS that you don't have the money to pay your tax bill and request to enter an installment payment plan. This involves filing extra forms, paying at least a $105 fee, and then making regualr payments to the IRS. This option can be cheaper than borrowing money and paying a lender, but it also involves more time to set up and more involvement with the IRS. Check the IRS website for more information.

If you or someone you know has a tax bill that you can't pay, consider the most economical option listed above. The goal has to be file your return with a payment or a plan with the IRS. Get this year out of the way and maybe next year will be less stressful.

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