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Financial Literacy - Taxes
Don't blow off the IRS
The IRS does offer several payment options. But do file your taxes or you'll owe huge penalties.
Taxes made easy

Ways to pay off a big tax bill

Some people ignore their tax responsibilities because they don't have enough money to pay their IRS bill. Not a good idea.

If you don't file a return, you'll ultimately make matters worse. The IRS assesses a failure-to-file penalty as well as one for not paying your bill. The fees are reminiscent of loan-shark rates, assessed each month at a rate of 5 percent of your tax bill (4.5 percent late-filing fee plus 0.5 percent late-payment penalty). As the months roll by, these fees can ultimately reach up to 47.5 percent of your tax bill. Ouch!

So your best move is to file the forms and pay as much of your bill as you can. You'll still face the failure-to-pay penalty each month your bill is outstanding, but it's only 0.5 percent of the amount you owe. With that out of the way, then it's time to look at other payment options.

Options for paying the IRS
Pay with plastic
Like most other creditors, Uncle Sam accepts credit cards.

Two private firms, Official Payments and Link2Gov, have contracted with the IRS to process charged tax payments. Both accept American Express, Discover, MasterCard or Visa. You can use your credit card regardless of whether you file by mail or electronically.

While handy, the credit option does have other costs. Both companies collect a fee of around 2.5 percent of your payment amount.

You also need to handle your credit card account wisely. The payment to the IRS will add to your account's balance; if you don't pay it off in full, additional interest charges by the card issuer will accrue.

-- Posted: Dec. 17, 2007
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