Businesses have options for paying IRS

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 may be difficult, but they do have some options.

Cash flow is a problem these days for many companies, with sales down and customers slower to pay. Owners whose companies have no lines of credit can't use that way to pay the IRS, and they'll probably find it's impossible to get credit in the lending climate now. So a sole proprietor in this situation has to make some decisions.

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 then, 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, and it can be human nature to put someone you're close to last on the payback list, behind banks and other creditors.

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, and a fairly easy one. Accountants say the IRS is inclined to approve payment plans.

"I have seen them to be more workable over the last 10 years," said Ms. Broderick, whose accounting firm, Broderick & Co., is in New York.

On its Web site, the IRS suggests 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 percent annual interest and 1 percent per month late payment penalties. It estimates that an installment agreement would cost a total of $12,204, including that original tax bill.

The best thing to do first is consult an accountant or other tax professional who can help you crunch the numbers.