Best way to pay your taxes due: electronic bank draft
If the bottom line on your tax return is bad news and you owe a balance due, the question is, what’s the best way to pay?
There are three ways to pay: You can mail a check, payable to “United States Treasury” (not “IRS”) and enclose the little voucher, Form 1040-V, which isn’t legally required but will help them process your payment. You can also pay by credit card, which isn’t a good idea, because there’s a 2.5% “convenience” fee. The best way to pay your balance is by electronic debit, which you can schedule for precisely on April 15. You can hang onto the money until the last minute (or give yourself time to make deposits). There’s no paper check to get lost and no credit card fee, and the responsibility for timely payment is the bank’s, not yours.
If you can pay in full, bite the bullet and do so. If you can’t pay the whole amount, pay as much as you can by the due date. The IRS will bill you for the balance and charge interest. You can also set up periodic payments. You can apply for an online payment agreement or you can set up a payment plan using IRS Forms 9465 and 344-F. Here’s the link for information:
If you’re in a real hardship position, they’ve shown some flexibility in the past few years, since so many folks have been in a similar situation. The important thing is to contact your local IRS office right away and discuss your situation with them.
Under certain circumstances, if you owe a significant amount, you’ll have to pay a penalty. (It’s Line 79 of the Form 1040.) Even the IRS admits that it’s a bear to figure this out, so pay the balance due and they’ll bill you. If you file your return on time, you won’t owe any additional late penalty.
Finally, if you do have a huge balance due (or conversely, a really outlandish refund coming), you may need to adjust your withholding with your employer(s) and/or change your quarterly payments for your self-employment work. The Treasury Department has an Electronic Federal Tax Payment System which makes it easy to set up your quarterly payments. You can also have your payments automatically debited from your bank account. Here’s the link: https://www.eftps.gov/eftps/. To adjust your withholding, file a new form W-4 with your employer(s) and decrease your exemptions and/or request additional funds to be withheld from your paychecks.
Further discussion about these matters is in Chapter 14 of The Actors Tax Guide, available at www.ActorsTaxGuide.com.