Ignoring taxes invites trouble

NEW YORK — The clock is ticking down to April 15 and it’s time to pay the tax man. But if your 1040 form says you owe more than you have in your bank account, what should you do?

“Don’t bury your head in the sand and hope it goes away,” warned Chas Roy-Chowdhury, head of taxation for the Association of Chartered Certified Accountants.

If you owe taxes and you don’t pay, the Internal Revenue Service can eventually go after your bank account, your paycheck or other assets.

Here are some other option:

File anyway. Tax experts say the most important step is to file on time.

“Deal with it and move on with the consequences, rather than have the IRS take control to determine how much tax you have to pay,” Roy-Chowdhury said.

Late filing, or not filing at all, can increase your tax bill by 25 percent or more when penalties and interest are added in.

Create a payoff plan. If you don’t have the cash, you can use a credit card, but you’ll pay a hefty fee for doing so through one of the two IRS-approved payment processors — almost 2.5 percent of what you’re charging. A payment agreement with the IRS itself may be a lower cost option for some people.

If you owe less than $25,000 and you’ve got no lingering tax issues from past years, you can file online at IRS.gov for a short-term extension or installment payment plan.

If you think you can come up with the money in three months, you can request the short-term extension and get 120 days extra to pay. There is no fee for an extension, but a 0.5 percent penalty and 4 percent per month interest will be added.

A monthly payment or installment plan comes with some hefty costs, starting with a $105 one-time user fee. That fee will be reduced to $52 if you agree to make your payments online, and low-income taxpayers may be able to get it cut to $43.

The online program calculates monthly payments based on your income, allowing for living expenses. It also adds in penalties and interest. Currently, the interest rate assessed would be 4 percent. The late-payment penalty is cut in half, to 0.25 percent, for installment plans if your return was filed on time.

With any of these options there’s an important caveat. The IRS may file a black mark on your credit report if you pay in installments.

Offer to compromise. You can also make an “offer in compromise,” requesting a deal with the IRS to pay only a portion of what’s due. Such an offer must be calculated using an IRS formula, but will still be for far less than the original amount. The offer in compromise process can be complicated and tedious. So it’s best to have a professional to guide you through it.