It seems obvious, but doing a quick review of your taxes may lead to deductions or credits that you've overlooked. Some taxpayers remain confused about the Making Work Pay Credit, which was in effect for only two years -- 2009 and 2010. In 2011 and 2012, it was replaced by a reduction in payroll taxes that reduced the share employees paid in Social Security taxes to 4.2% from 6.2%. But filers don't have to report anything on their returns, since they've already received the credit in their paychecks. If you are self-employed, your self-employment tax for 2012 is 10.4%, down from the customary 12.4%.
If you're a college student or a parent of one, you may be eligible for the American Opportunity Tax Credit, which provides a credit of $2,500 to those who earn $80,000 or less ($160,000 for joint filers). The credit was set to expire in 2010 but Congress extended it through the end of 2012.
Even if you can't possibly pay what you owe immediately, make an effort to file on time anyway. There are penalties associated with failing to file on time, as well as penalties associated with failing to make payments. Don't compound your problems by incurring both.
Just because you can't write a check for the full amount today, that doesn't mean that you can't make a payment. Don't forget that the IRS will accept payment by credit card (just try to use a low-interest card if you have one -- paying your taxes with plastic is usually a bad idea). You may also be able to borrow from family members -- or take out a home equity loan. If you can finance the taxes you owe from some other source, you may have to pay interest, but you'll escape penalties from the IRS.
The IRS is more than happy to take your money over a period of time -- with accompanying penalties and interest. Painful, sure. But it's better than doing nothing. And the interest rate is actually quite low:a mere 3%. If you owe $25,000 or less in combined tax, penalties and interest, you can enter into an agreement using the IRS' online tool: the Online Payment Agreement. If you prefer to file through the mail, you can complete a federal Form 9465, Request for Installment Agreement. If you owe more than $25,000, you can't file for an agreement online: You'll have to submit the Form 9465 and a financial statement known as a federal Form 433-F.
If you have a significant financial issue that makes it impossible for you to pay your taxes now, the IRS may temporarily delay collection until your financial condition improves. This option is strictly up to the IRS -- they determine whether your condition warrants a delay. Penalties and interest will still accrue during this time, and they could put a lien on your property. However, it will give you some breathing room while you get your affairs in order.
If all else fails, you can consider an Offer in Compromise. An OIC is an agreement between you and the IRS that allows you to pay less than the full amount owed. You should be aware that the IRS has strict criteria for accepting an OIC, and there are associated costs (including a filing fee). You may want to consider retaining a tax professional to help you. Just be aware, however, that despite ads on TV claiming that your account can be settled for "pennies on the dollar," the IRS rejects most OIC applications, especially if they believe they can otherwise collect from you.
No matter which option you choose, don't ignore your tax obligations. They won't go away and will likely get worse, resulting in tax liens on your property or garnishment of wages. And keep in mind that the IRS is a great deal more cooperative when they believe you're making an effort to resolve things on your end.