TODAY   |  April 02, 2013

What to do if you can’t afford to pay your taxes

According to the IRS, one in six taxpayers filing a tax return has a balance due, but the good news is there are ways to work with the IRS to avoid paying a penalty. CNBC’s Sharon Epperson explains the options available to you.

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This content comes from Closed Captioning that was broadcast along with this program.

>> this segment we've done a lot of times.

>> certainly.

>> i think it's so important because if you have the wrong information or if you do the wrong things at this stage, it can cost you dearly.

>> it can cost you a lot and the wrong mistake so many people make is failing to file a tax return . even if you can't pay right now, put in that tax return , file that tax return on time, that's the best thing you can do.

>> and the reason for that and people need to hear this, that if you fail to file a return, the penalty is greater than if you can't pay.

>> it's ten times greater, if you fail to file you pay 5% of that unpaid tax bill plus interest every month. if you just are unable to pay, that failure to pay penalty is only half a percent plus interest every month.

>> say you need to file an extension. how much time does that buy you?

>> it buys you six months but you got to do it by april 15th . you still have to file for that extension by the tax filing deadline and do you not have to file your return until october 15th .

>> you file for an extension and two things you can do, you can call the irs , who do you ask for and what do you tell them?

>> you can ask for someone. the fact is to go on irs .gov and try to set up an installment agreement right there, that's the best bet for many people.

>> if you end up talking to a human being do you give them the reasons that you're unable to pay your irs bill?

>> you probably have many reasons you're unable to pay. what the irs wants to know and they say this on the online form as well they want to know the highest amount that you can pay every month and when you'll be able to pay it. that's what they really want to know and once you're able to do that you can apply for this online, this installment agreement and have it set up in minutes.

>> very easy. you want people to be aware especially at this period of time where they're vulnerable that there are scams out there. talk to me about that.

>> there are scams out there and a lot of people are preying on folks who may be having some trouble paying their taxes or may be unaware of how to go through the process. one of the biggest scams out there of course is identity theft and the irs has been working diligently trying to get rid of identity theft but it's out there, people trying to take your social security number or other information on your return to file a return or try to get a claim, claim a refund.

>> at the bottom of the screen it says the irs never uses e-mail to contact taxpayers about tax issues so if you get an e-mail claiming to be from the irs , it's not from the irs .

>> it's not from the irs , that's a phishing scam . if they want to contact you, they will contact you but they'll send you a letter.

>> we get a lot of e-mails over the last couple of days about filing taxes and this one, more than half of all small businesses work from home and here's a common worry tweeted actually by gary, he tweets, is a home office deduction an automatic audit?

>> so many people worry about this. this is not necessarily true. in fact normally if you have a home-based business you use a percentage of your home, a space in your home, a room in your home exclusively for work, then you are able to claim the home office deduction. what trips people up, it is a complicated process. you need to figure out the percentage of the square footage in your home that is used for the home office and the percentage of expenses that are used for this home office work, and the difficulty here is that doing those calculations can often confuse people, it's difficult. starting next year the irs will simplify the process.

>> let's go back and end on the headline, if you can't afford your irs bill file a return anyway because the penalty for not filing a return is ten times greater than the penalty for not being able to pay the bill.

>> that's right, file it by april 15th , file for an extension if you need to but realize if you file for an extension that penalty and interest still starts to kick in starting april 16th .

>> sharon epperson , thanks very much, appreciate it.