The exterior of the Internal Revenue Service building in Washington, D.C., March 22, 2013. (Susan Walsh/AP)

You’ve put off doing your taxes until the bitter end. And as the deadline approaches, you realize you owe the Internal Revenue Service – and you don’t have the money.

Let’s say that you owe $10,000, maybe because you opened your own business or started driving for a ride-sharing service like Uber and Lyft but hadn’t paid your taxes each quarter as you should have. What should you do now?

Well, one thing you shouldn’t do is just decide not to file a return, hoping that the IRS won’t notice. There’s no statute of limitations on when the IRS can collect taxes and penalize you if you fail to file your return, meaning you’ll be in limbo for a long time.

If you file your tax return by midnight April 15, you won’t be hit with a failure-to-file penalty. If you don’t take that minimal step, then you’ll owe 5 percent of your unpaid taxes as a penalty. This means adding $500 to your tax bill for no reason at all.

Of course, filing your return on time isn’t the same as paying your taxes on time. Unless you also pay the taxes you owe, you may be hit with a failure-to-pay penalty. That’s what you want to avoid, or at least make as small as possible.

If you don’t have the money, you have three options:

1. Do nothing. 

Not a wise option. Interest and penalties accrue while you have an outstanding tax obligation, so your tax problem will only get worse if you ignore it. Also the IRS has the legal right to take actions to collect what you owe. You’re likely to receive a letter from the IRS that will explain how much you owe in taxes plus penalties and interest and ask that you pay them in full. The IRS has ten years to collect from you.

What’s worse than getting this letter, however, is getting hit with a Notice of Federal Tax Lien that tells anyone you have borrowed money from that the federal government has a legal priority to your assets. Having such a lien may make it difficult to get a loan in the future. In an extreme case, you may be served a Notice of Levy saying that the IRS intends to seize your property, including your car or home, or garnish your wages, bank accounts, Social Security benefits and retirement income, to satisfy your outstanding tax liability.

[How to handle a letter from the IRS]

2. Take out a loan for the full amount due.

You could go to a your credit union or bank to take out a personal loan to pay your tax in full when you file your return. If you own a home, you could establish a line of credit and take out a home equity loan. There are other, less attractive options, like borrowing from your retirement plan. This will end up costing you twice because not only will you be repaying your retirement fund with after-tax dollars, but also you’ll pay taxes on the funds when you withdraw them in retirement. Plus, you lose the benefit of compound interest on the amount that you take out.

You could pay your bill with a credit card, which despite the high annual percentage rate charged on outstanding balances, might be a sensible option in two cases. The first is that you may be anticipating receiving enough income in the next few weeks to pay your taxes so that all you need is a bridge between April 15 and that day. If you are able to pay off your credit card bill before the next billing cycle, you will have an “interest free” loan. Even if you can’t pay off the full amount, using plastic may also may make sense if the fees for having an outstanding credit card balance are lower than the potential penalties and interest that you may incur from the IRS.

As a most desperate measure, payday lenders will advance you money based on a future paycheck, but at a very high cost. The Pew Charitable Trusts found that across the country, people paid an average of $520 in fees and interest for a five-month $375 payday loan. It may help keep the IRS off your back, but it’s risky.

3. Reach an agreement with the IRS to pursue other payment options.

One option is the Installment Agreement plan. Just like an installment plan at your local Sears or Macy’s department store, you can ask the IRS, either online or when you file your tax return by attaching the proper form, to spread your payments out over time. If you’re eligible to participate and as long as you don’t owe more than $50,000 in income tax, penalties and interest, you can arrange to pay your outstanding balance due in a series of smaller payments for up to 72 months. The IRS charges a fee for this.

If you find that even making an installment payment is difficult, you should know that there’s some leeway in the payment process.

Finally, if your outstanding balance is so high that you feel you’ll never be able to pay it, you can make the IRS what’s known as an offer in compromise to reduce the taxes you owe. Because this method reduces your tax liability, you have to demonstrate that you don’t have enough income or assets to meet your obligations or that paying your taxes would cause undue hardship or be unjust for the IRS to accept your offer. The IRS describes this process as giving you a “fresh start” with your taxes.

One final piece of advice. To avoid finding yourself in this situation next year, either increase the amount of taxes withheld from your paycheck by updating your W-4 agreement with your employer or, if you’re self-employed, make your estimated quarterly payments by automatically putting aside enough funds from your income to pay your taxes due throughout the year and ease the burden next April 15.

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