One Tax Expert Says This Is the Single Worst Thing You Can Do When You Owe the IRS Money

Ignoring the problem is not going to make it go away.

For some people, tax season is an exciting time. That's because it often means getting a refund.

But what if that's not the situation you're in this year? Maybe you picked up a side hustle last year you did on a freelance basis. If you didn't pay estimated taxes on that income, you might owe the IRS some money for 2022.

Similarly, maybe you made a boatload of money on interest in your savings account last year once rates started picking up. That, combined with a general uptick in income, could leave you owing money on your taxes this year rather than awaiting a refund.

Now it's one thing to dip into your savings and pay off the IRS when you have a balance due. But if you don't have the money to do that, you may be inclined to put off your tax return until you've accumulated the cash.

That, however, is pretty much the biggest mistake you can make in that situation, says Mark Steber, Chief Tax Information Officer at Jackson Hewitt. Here's why.

Don't make a bad situation even worse

Taxes are due this year on April 18. If you can't pay your tax bill in full or at all, you may be inclined to just sit on your return until you have the money. But doing that could mean subjecting yourself to added penalties.

"The tax-filing obligation is separate from the tax-paying obligation," explains Steber. And if you owe the IRS money and don't file your return on time, you'll be slapped with a specific failure to file penalty. Worse yet, that penalty is worth 5% per month or partial month you're late with your return. So all told, it can add up quickly.

A much better bet, says Steber, is to file your tax return by the April 18 deadline and figure out a way to pay the IRS what you owe. If you can't pay your tax bill in full by April 18, you will start to accumulate interest and penalties on your unpaid debt. But you'll avoid the failure to file penalty.

Options for paying your tax bill

If you don't have the cash to cover your tax bill, you may be able to put it on a credit card and get it over with. But in that case, the interest you pay on your credit card might well surpass the interest and penalties the IRS charges you for being late with your tax bill. So that may not be worth it. Plus, you'll generally be charged a fee to use a credit card in the first place.

A better bet, therefore, may be to get on an installment payment plan. Steber explains that the IRS is actually pretty good about letting filers pay off their taxes over time. All you need to do is reach out and work out an arrangement.

But no matter what, make a point to file that tax return by April 18. And if you can't, at least make sure to request a tax extension by April 18. That will give you an additional six months to complete your return without incurring a failure to file penalty.