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Six Ways to Fund IRS Payments

If you're like millions of other small-business owners across the country, your business has practically fallen off a cliff in the past few months.

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For some owners, there's even more bad news. A decline in business means that revenue you were relying on to fund a payment to the Internal Revenue Service April 15 won't be there when you need it.

The good news is that if you find yourself in that nail-biting situation, you may have at least six ways to free up money to pay the IRS.

1. 'Borrow' from the government
"You can ask the IRS for a payment plan," says Buz Aaron, CPA, senior tax manager at Braver PC in Newton, Mass., "and the government will allow you to apply for, in effect, a loan from it."

There is, of course, a downside to borrowing from the IRS. "Interest rates on IRS installment loans range from 7 (percent) to 12 percent," says Michael T. Hanley, CPA, managing partner at Merl & Hanley LLP in Smithtown, N.Y. "It varies based on the prime rate." You'll also have to pay a "user fee" that ranges from $43 to $105 depending on your financial condition.

There's also a process you must follow. "A lot of people say, 'I can't pay what I owe, so I'm not going to file my tax return,'" Hanley explains. "But the best option is to let the IRS know you can't pay. If you do that, the IRS will make a lot of concessions. A lot of times they'll stop assessing penalties from the day you've filed for the payment plan. Or maybe they'll fix the interest rate. So the best course is to be up front and work with the IRS."

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More Tax and Small Business Help From Bankrate.com:

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If you owe $25,000 or less, you can request a payment plan online at IRS.gov through Form 9464, called an Online Payment Agreement. If you owe more than $25,000, you must print, complete and mail forms 9465 and 433-F.

"Because of tight credit, there are going to be a lot more business owners who'll be taking advantage of IRS payment plans than in the past," Aaron says. "It's easy credit because you don't have go through a credit check. You simply have to fill out a form."

2. Tap home equity
In the past decade, thousands of business owners have refinanced their homes or taken out home equity lines of credit, or HELOCs, to pay for business operations. That's harder to accomplish today. "These days, getting your hands on cash isn't what it used to be, especially with the mortgage crisis," Aaron says. "That source of credit doesn't exist for many people anymore."

But if you're one of the lucky Americans who has equity in your home and a good credit rating, it's worth considering. "Mortgage interest rates have never been lower," Hanley says. "However, refinancing your home mortgage isn't necessarily a good option if the only problem you're looking to solve is paying your tax bill. Closing costs will almost always outweigh the benefit of an interest rate lower than the rate on an IRS payment plan. But it may be a good idea if you have other high-interest-rate loans to consolidate, you're in a variable-rate mortgage that may reset in the next year, or your existing fixed mortgage rate is 6.5 percent or higher."

3. Borrow against savings
"An inexpensive way to fund a tax payment is to borrow against your personal savings, certificates of deposit or life insurance," says Fred Brewitt, principal at Brewitt & Domke in Marlborough, Mass. "If you have a five-year CD that will mature in four years, you can probably borrow all the way up to the full amount because the bank already has your money. Those loans are usually at low interest rates, and you don't have to fill out any applications."

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