The earlier you can get started on planning for your taxes, the better. Making sure you're having the right amount withheld from your paycheck (or, if you're self-employed, setting aside the right amount of your income) can mean the difference between a refund and a big bill in April. But what if tax season arrives and you find that you're unable to pay what you owe?

IRS Collections

The Internal Revenue Service, as a part of the federal government, has broad powers when it comes to collecting money owed by taxpayers. If you owe money to the IRS, you will be sent a bill, which is the beginning of the collections process. If things have gotten to this point, you do not want to delay in talking with the IRS and with a tax professional to work out a way to pay this money; otherwise, your account will become delinquent.

A delinquent account means that the IRS will begin what is called enforced collections. This can mean levies, or seizure of property, in order to settle your debt. This property is not necessarily physical property – one very common form of levy is for the IRS to take a portion of your paycheck.

By keeping in contact with the IRS, however, you should be able to avoid a delinquent account even if you can't pay your taxes in full. What is most important is that you don't ignore the problem – instead, communicate with the IRS as much as possible.

Liquidating Assets/Loans

Because of the penalties involved in not paying your taxes on time, it's worth taking a second look if you think you can't pay. It may be worth it to sell off some assets in order to make your tax payment.

Some people even take out loans in order to make their payment. Determining whether this is a good idea is complicated – you need to compare the cost of late payment on your taxes (in interest and penalties) with the cost of taking out the loan. In addition, you must consider how long it will take you to pay off your balance if you don't take out a loan. For most people without financial training, discussing this option with an accountant is the best idea.

Installment Payment Plans

If you think that you will be able to pay your taxes in full within a few months of the April 15 deadline, you may qualify for a short-term extension. Don't confuse this with an extension to file, sometimes simply called a "tax extension," which simply gives you more time to get your paperwork done. If it will take you longer to pay your taxes, then the IRS may suggest an installment plan instead.

You can call the IRS to discuss getting a short-term extension; you will still owe interest on the debt, but there's no application fee. You can also apply for an extension or installment plan through the IRS website. For more information about tax preparation, visit HBE Becker Meyer Love LLP.

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