Lisa Allen

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What do you do when your expected tax refund turns out to be a big fat tax bill? The problem gets even worse for those who have to come up with much more than the few hundred dollars left in their checking accounts, most of which is already set aside for groceries, rent, and the electric bill.

Keep calm
Resist the urge to stick your head in the sand and hope the IRS will just go away. They won’t, and avoiding the problem will only make it worse. To minimize the damage, file your return and send as much money as possible. By sending your paperwork, you’ll avoid steep penalties imposed for the failure to file a timely return.

Trading debt for debt
You can get the IRS off your back by coming up with the money using your credit card or some other form of consumer loan, like borrowing against your home equity. Of course, borrowing to pay your tax bill will only transfer your debt from one place to another, but it will keep the tax collectors at bay.

Negotiate at the source
If you’d rather deal with the IRS directly, you can. Virtually anyone who owes less than $25,000 in taxes, penalties, and interest can request an installment agreement.

Making a choice
The IRS maintains that it’s less expensive to pay your taxes by credit card or by borrowing against your home, real estate, or other investments. In part, that’s because the IRS keeps levying interest and penalties as long as you have some unpaid tax debt left outstanding. However, the interest rate charged by the IRS may be lower than the interest rate imposed by your credit card. You’ll have to do some math, and some soul searching, to decide which option makes the most financial and emotional sense.

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