Taxes due? The IRS may OK a payment plan

A day of reckoning is approaching for some small-business owners: Oct. 15, when those who got extensions of the deadline for filing 2007 tax returns must now send in their completed forms and pay any tax they owe. For some owners, coming up with the money right now will be difficult, but they do have some options.

Cash flow is a problem for many companies, with sales down and customers slower to pay. Owners whose companies don’t have lines of credit can’t use that avenue to pay the Internal Revenue Service.

The first thing to do, according to certified public accountant Ginger Broderick, is “send in as much as you can with the return.” The IRS will then send a bill for the balance due.

If an owner can’t come up with the cash, he or she needs to decide whether to borrow from relatives or friends, credit cards or home equity lines -- or the government.

The first option, borrowing from someone you know, can be dicey. There can be hard feelings if the money isn’t paid back as fast as the person lending the money expects.

Credit cards can be an option, but not if your cards carry high interest rates and you owe the government a sizable amount. The debt will be very difficult to pay back, particularly when you’re struggling with cash-flow problems, and you could end up in deeper financial trouble.

The third option, getting an installment agreement with the IRS, can be a viable solution. Accountants say the IRS is inclined to approve payment plans.

On its website, the IRS suggests that taxpayers consider whether they would be better off borrowing from credit cards rather than obtaining an installment agreement. The agency estimates that a $10,000 tax bill paid off over 36 months could mean payments as high as $339 per month, including 5% annual interest and 1% per month late-payment penalties. It estimates that an installment agreement would cost a total of $12,204, including that original tax bill.

Broderick noted that an installment agreement for amounts over $10,000 can be noted on your credit history, so this could affect your credit applications in the future. Her suggestion is to try to whittle down your tax bill to keep it below that threshold.

If you decide you’d rather owe the government, the process for obtaining a payment plan is fairly simple if your total bill is $25,000 or less. You’ll need to complete IRS Form 9465, Installment Agreement Request, and mail it in, or you can apply online at the IRS website, www.irs.gov. You can download Form 9465 at the site.

The information the government requests in such cases is minimal, such as the name of your bank and how much you plan to pay. The IRS says it usually notifies a taxpayer within 30 days if an application is approved.

If you owe more than $25,000, you’ll have to supply the government with detailed financial information, filling out Form 433-F, Collection Information Statement. It calls for you to list all your sources of income and all your assets.