- Days left
Unpaid bills
Twin Design/Shutterstock
April 15 is stressful. So stressful, in fact, that car crash fatalities increase by 6 percent on that day, according to a study in the Journal of the American Medical Association -- which sure gives some extra punch to the old adage about death and taxes.

Owing taxes -- especially if you don't have the funds to pay them by the deadline -- is a cause of much tax-day anxiety. But there are ways to manage it.

Be Proactive

If you know you'll owe, it's tempting to postpone the day of reckoning. But skipping the due date entirely to buy yourself more time is a costly mistake. Doing so can add a hefty late-filing penalty to your bill -- 5 percent of the amount owed per month.

Once you know the total damage, cough up whatever cash you can by April 15 and send it to Uncle Sam. Depending on your situation and the amount owed, that may require seemingly drastic options like draining your emergency fund and borrowing against other assets. You'll still pay a penalty on what you can't pay, but it's a less onerous 0.5 percent to 1 percent per month on the unpaid amount.

Still Owe? The IRS Has a Plan or Two

This is when the going gets tough. Can you pay within 120 days? If you've got a bonus or other funds coming your way (or can scrimp for a few months) and you owe less than $50,000, request a short-term payment extension. You'll be responsible for a late-payment penalty of 0.5 percent per month and interest charges (equal to 6 percent per year), but there's no cost to establish the extension.

If you need more than a few months, for a fee, you can set up a monthly installment plan (if you owe less than $50,000, there's a handy online form). For most folks, it's $52 if you opt for direct debit or $120 if you choose payroll deduction or an old-fashioned check. You'll also pay the interest and late penalty charges mentioned above.

The IRS does a reasonable job of making it easy to request an extension or installment plan. However, it comes at a high price when you add up the fees, penalties and interest it charges. Even the IRS itself admits, "You should consider financing the full payment of your tax liability through loans, such as a home equity loan from a financial institution or a credit card. The interest rate and any applicable fees ... are usually lower than the combination of interest and penalties imposed by the Internal Revenue Code."

Alternatives for Desperate Times

Consider these options against the IRS' payment plan. Also realize that getting cash using these methods may take more time than you have.

In a previous article, I detailed the pros and cons of several ways to get cash fast, including borrowing from family, getting a cash advance on a credit card or taking out a 401(k) loan. All carry risks and costs, but they'll give you more flexibility over how you repay the loan and may save some money in fees.

For example, you can usually pay a 401(k) loan back over a longer period (up to five years, depending on your employer), and you're paying the interest to yourself, not the U.S. Treasury. On the downside, there are limits on what you can borrow, and if you lose (or leave) your job, you have to repay the loan within 60 days.

The IRS mentions home equity loans as another option (this would also include home equity lines of credit, or HELOCs). I'm generally not a fan of borrowing against your home to pay other debts -- defaulting on these loans is especially risky, since your home is on the line. That said, if you already have an HELOC or can get approved for a loan or line of credit quickly, these loans are cheaper (right now, the average HELOC rate is less than 5 percent) than many other types of credit.

Now for Some Good News

Once you decide how you're going to pay this year's taxes, make sure you don't wind up in the same situation next April. Use a calculator to estimate what you owe vs. your withholding and adjust your withholdings if necessary. Check again in the fall.

I recommend everyone do this quick 10-minute exercise no later than Oct. 1 of each year, earlier if you had a hefty bill the year before. Filing taxes is always, er, taxing, but a little planning can make the process a whole lot less stressful.

Robyn Gearey is a Motley Fool contributing writer.

Increase your money and finance knowledge from home

How to Avoid Financial Scams

Avoid getting duped by financial scams.

View Course »

Intro to different retirement accounts

What does it mean to have a 401(k)? IRA?

View Course »

TurboTax Articles

What is IRS Form 8379: Injured Spouse Allocation

The Internal Revenue Service (IRS) has the power to seize income tax refunds when a taxpayer owes certain debts, such as unpaid taxes or overdue child support. Sometimes, a married couple's joint tax refund will be seized because of a debt for which only one spouse is responsible. When that happens, the other spouse is said to be "injured" and can file Form 8379 to get at least some of the refund.

What are 1095 Tax Forms for Health Care?

The Affordable Health Care Act, also known as Obamacare, introduced three new tax forms relevant to individuals, employers and health insurance providers. They are forms 1095-A, 1095-B and 1095-C. These forms help determine if you need to comply with the new shared responsibility payment, the fee you might have to pay if you don't have health insurance. For individuals who bought insurance through the health care marketplace, this information will help to determine whether you are able to receive an additional premium tax credit or have to pay some back.

A Tax Guide for Solopreneurs: Self-Employed Tax Tips

Flying solo can be the ultimate business adventure. When you run your own business and you're the only employee, you truly hold all the cards and earn the freedom to achieve your ideal work-life balance. Working for yourself also brings tax advantages not available to those who work for others. It's important to understand the tax rules that apply to the self-employed to profit the most from these.

Add a Comment

*0 / 3000 Character Maximum

28 Comments

Filter by:
Tisha Montique

I find this article to be quite true. I've been in the IRS tax debt ringer myself and it was nothing nice, lol. I'm proud to say that I'm out now (thank god). I've been in my struggles like everybody else here I'm sure. But if I can have the chance to help somebody going through the same troubles as I was, I would most definitely love to. I called a highly recommended tax debt company I got from a former IRS employee and they worked with me and didn't charge a arm and a leg for the service, but to avoid me sounding like the thirsty sales guy I'll stop babbling like one lol. Here's the number if anyone wanted to call. Its worth a try but u guys feel free to do whatever you think will help your situation, just tryna help 855-799-7284.

March 17 2015 at 2:01 AM Report abuse rate up rate down Reply
bhupati231213

How nice payday loan! Cash Advance are really great for me to get low interest payday loan.I thinks every body like this financial service site.So better,Thanks to modern technology.www.usacheckcashingstore.com/carson/

April 17 2014 at 1:46 AM Report abuse rate up rate down Reply
proteus12544

My ex left a mess of unpaid taxes for me to deal with as he made it clear he was not going to pay and they could put him in jail if they wanted to. However we filed jointly and so it was as much my mess as his and I was not going to jail. I made a payment plan with them and when I sent the payment that paid off the amount that was originally owed I sent a letter asking them to forgive the penalties and interest. They did. I hated to have to pay it all myself but having that forgiven helped. Now this was a while back I don't know if they still do that but it never hurts to ask.

April 10 2014 at 3:48 AM Report abuse rate up rate down Reply
Robert Lewis

Errrrrrraaaa...this is Ted Kennedy coming to you from my booze soaked grave.....I was in congress for 30 confisseled years....taxes are good ....swim Mary Joe...I'll see you at home!

April 09 2014 at 8:47 PM Report abuse -1 rate up rate down Reply
wbearl

Sent my check in yesterday, figured Obama was in need of another vacation. I even made the check out to him. I'm retired, making less than when I was working and paying more taxes than ever. Got to love the tax and spend politicians.

April 09 2014 at 8:14 PM Report abuse +3 rate up rate down Reply
1 reply to wbearl's comment
vallontina

You need some write offs.

April 09 2014 at 8:25 PM Report abuse rate up rate down Reply
Robert Lewis

So I guess when our gov't gives away billions...f.in billions to other countries....you know.to help them out..? we all have to pay to fill the void...DESTROY THE IRS.....it's quickly taking all of us down!

April 09 2014 at 8:14 PM Report abuse +2 rate up rate down Reply
J. Besecke

Robyn Gearey must be paid a commission to writeuch junk .Go to a company that can fight IRS. Their on TV all the time. You will in the end pay only 10% or 20 % of what you owe and the fee will be only 10% of your tax bill. Lastly tell IRS you will pay X dollars each month over 7 years and that is it. In todays world IRS is more afraid of you going to Congress oversight committe for help then anything else.

April 09 2014 at 8:05 PM Report abuse rate up rate down Reply
leighfoulkes314

If your extremely rich, you don't have to pay your taxes and then turn around and complain about the amount of taxes you have to pay and how poor people then steal from the government and then get tax dollars to pay for your new factory that they then give jobs to illegal immigrants and pay them below minimal wages...

April 09 2014 at 7:20 PM Report abuse rate up rate down Reply
kupiec8

Here's an idea ---- file by April 15th, and you would have gotten your refund already ...... WHA WHA

April 09 2014 at 5:52 PM Report abuse -1 rate up rate down Reply
cltt1218

Filed my taxes in July (extension) and should have gotten a refund...hasn't arrived yet! The IRS is blaming the government shut down.

April 09 2014 at 5:04 PM Report abuse rate up rate down Reply