Tax Tips: Setting up a payment plan

If you owe taxes to the government, the worst thing you can do is try to ignore it. Not paying your tax debt can get very expensive, very quickly. Each day that you don't pay, you're incurring interest and penalties at alarming rates. The best thing you can do, short of paying in full, is set up a payment plan with the IRS.

Make sure you file your taxes on time, whether you owe or not. Late filing is the first thing that will get you in trouble. So even if you owe, go ahead and file your taxes. Then wait for the IRS to send you a notice about the money you owe. Read it carefully, and call the phone number they give you to make payment arrangements.

The process of setting up the plan isn't too hard, but you should be aware that the IRS will want you to stretch to pay your tax debt off as soon as possible. Their theory is that they should get paid before you do. No spending on eating out, entertainment, or other extras. So they'll propose a monthly amount that might sound higher than you want to pay. Suck it up and pay it. Believe me, when your tax debt is paid, you'll feel much better.

Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.