April 15th will be here sooner than you think and for a lot of people crunching the numbers on their 1040 forms the bottom line won’t be pretty. They’ll see that they owe money on their taxes and many won’t have a clue how they are going to pay.

As you might imagine, not having the cash to pay the Feds is a very big concern at a time when so many people are out of work, have drawn down their savings or have robbed their retirement accounts blind (causing an even greater tax bill if it’s a premature withdrawal.)

If you find yourself in this situation, don’t panic. Know what you’re facing and take action, because the worst thing that you can do is nothing. The government has near unlimited authority to make your life miserable. They can garnish your wages, put liens on your property and even throw you in jail.

Did I actually say “don’t panic?”

Rule Number One: still file your return, even if you can’t send a check along with it. Not filing a timely return is a federal offense, and you don’t want to go the Wesley Snipes route. But filing without payment doesn’t get you totally off the hook. Receiving your return without the cash owed will start the penalty train moving down the tracks.

The penalty failing to pay on time is .5% for each month (or part of a month) that the payment is late.  The maximum penalty is 25%.

Filing late is much worse. The failure-to-file penalty (or the delinquency penalty as it’s also known) is assessed at a rate of 5% per month with a typical maximum of 25%. That’s ten times as much for those keeping score at home.

If you obtain an extension for your filing due date, you are not filing late unless you miss the extended due date.

For more information on income tax penalties check out http://www.irs.gov/taxtopics/tc653.html.

So where does that leave you when you still have an outstanding bill with Uncle Sam? Here are some of your options:

• Tap into Your Home Equity. If you have sufficient credit on a home equity line, this is a great way to pay taxes owed. You’ll typically have a low interest rate and the interest you pay will generally be tax deductible for the coming tax year. Win win.
• Pay by Credit Card. Not ideal for people looking to get out of debt, I know, but if you have a low interest rate and a plan to pay it off, this is an easy out. You’ll have no I.R.S. penalties, you’ll get the monkey off your back and might even pick up some rewards points. The I.R.S. has information about doing this and a table of their fees for doing this on their website at http://www.irs.gov/efile/article/0,,id=101316,00.html.
• Ask for a Loan from Family/Friends. Everyone knows that the Treasury Department is not to be trifled with and you’d be surprised how willing folks can be to help you get out from under the boot of big government.
• Borrow from your 401(k) or IRA. This is a last-ditch solution but if you will have the money to pay your taxes soon you can typically borrow against your retirement account as long as you repay it within 60 days. But if you can’t, the taxes and penalties will be as bad as paying last year’s taxes late.
• Make Some Money Fast. If your tax bill is small and you’ve got a few weeks still, check out the Earn More section of Debtbeat to find ways to earn a little extra cash ASAP.

When all other sources of funding fail, pick up the phone and call the I.R.S. They want to get their money and are tasked with helping you meet that end.

They can work out an installment plan for you and if your circumstances are dire enough, even negotiate a lowered settlement. You will still have penalties and interest, but at least you won’t have the Feds after you like Mafia loan sharks looking to collect their vig.

There’s been a lot said lately about poor service and long wait times when trying to reach the I.R.S. and there’s a lot of truth behind that.

However, the government recognizes that this is a problem and as a result has proposed more than $43 million in the new  budget to improve IRS customer service. So while the concern of not getting through to someone who can help is legitimate, more than anything else it’s fear and embarrassment that prevent a lot of people from making that call, and it costs them big time.

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