Consumer Reports: Managing income taxes you can't pay right away

SAN FRANCISCO (KGO) -- April 17 is just around the corner. A date you may be dreading if you owe income tax and do not have a clue how to come up with the money. Consumer Reports says don't panic. 7 On Your Side's Michael Finney reports on ways to manage your federal income tax bill that are surprisingly easy.

This is a hectic time for accountants, Alan Rosen and Michael Schwartz and their staff were in the thick of preparing more than a thousand tax returns before April 17. A lot of their clients owe money, but can't pay it all at once.

"Their reaction is usually panic. What do I do? I'm in trouble. Help me," said Alan Rosen, a Certified Public Accountant.

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"It's my job to tell them OK, let's plan this out," said Michael Schwartz, also a Certified Public Accountant.

"Hands down, the most important thing - no matter how much you can or cannot pay - is to file your tax return on time," insisted Tobie Stanger, Consumer Reports Money Editor.

If you don't, the Internal Revenue Service will charge a penalty of five-percent of what you owe per month, plus hefty interest on top of that. "Also important when you owe money, is to face the problem head on. The Internal Revenue Service has payment plans that may very well help you in your particular financial situation," said Stanger.

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The best is to pay as much as you can by the April deadline to minimize penalties and interest.

If you can pay the full bill within 120 days, you will still pay penalties and interest on the balance, but there is no IRS fee to set up the plan.

An installment plan is more expensive. You'll pay to set it up, and it costs more in interest and penalties depending on the length of the payment term, six year maximum on that.

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No matter what agreement you come to with the IRS, C.P.A. Michael Schwartz says stick to it, "Or else the IRS considers the agreement null and void, and goes after you for the full amount at that point."

You can also file for an extension by April 17, but that only gives you a six-month reprieve from filing the paperwork.

Click here for a look at more stories by Michael Finney and 7 On Your Side.

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Written and produced by Justin Mendoza