As the filing deadline for last year's 1040 looms ominously, you have two rational choices: Ship your return off by April 15 or get a filing extension by that date. This advice holds true even if you know you don't owe any taxes — more so if you do but realize you can't pay up on time.

'But I Know I Don't Owe'
Let's say you are certain there are no additional federal income taxes due for last year. Maybe you had negative taxable income or coughed up your share via withholding or estimated payments. Now you are missing some records; are too darned busy at work; or have some other convincing reason for putting off filing. And you don't want to bother with getting an extension either. No problem, since you don't owe — right? Wrong.

While it's true there will be no IRS interest or penalties (these are based on your unpaid liability, which you say is zero), blowing off filing or extending is still a bad idea. Here's why.

• You may be due a refund. Filing a return gets your money back. No return, no refund.

• Until a return is filed, the three-year statute-of-limitations period for the commencement of an IRS audit never gets started. The IRS can then audit your 2004 situation five years (or more) from now, and hit you with a tax bill, plus interest and penalties. By then, you may not be able to prove you actually owed nothing. In contrast, when you do the smart thing and file a 2004 return showing zero taxes due, the government must generally begin any audit within three years. Once the deadline passes, your 2004 tax year is generally water under the bridge, even if the return had some warts.

• If you had a tax loss in 2004, you may be able to carry it back as far as your 2002 tax year and claim refunds. However, until you file a 2004 return, your loss doesn't officially exist, and no refund claims are possible.

• There are other more esoteric reasons that apply to taxpayers in specific situations.

The bottom line is, you need to either file by April 15 or, perhaps more realistically, get an extension and file later when you have more time.

The IRS will automatically approve any request for a four-month filing extension to August 15. Simply file Form 4868 (Application for Automatic Extension of Time to File U.S. Individual Income Tax Return) by April 15. Completing it takes about two minutes. (Honestly.)

You don't need to have a reason for asking for the extension, and signatures are no longer required. For example, if your spouse is vacationing in Greece or unavailable to sign for any reason, that's no problem. The only requirement is the total 2004 income tax liability and any amount still owing (which could be zero) must be estimated with reasonable accuracy (and paid) with Form 4868.

'I Owe But Don't Have the Dough'
This is absolutely no excuse for not filing or failing to get an extension. Here's why.

• If you file by April 15 but can't pay, you should arrange for an installment agreement, as explained below.

• If you are not ready to file, just send in Form 4868 on or before the magic date.

Either way, you'll successfully dodge the expensive (and totally unnecessary) 5% per month "failure-to-file" penalty — even though you didn't pay on time. However, the government will charge you interest at a much more reasonable rate (currently .83% on a monthly basis) until you pay up. (The interest rate can change quarterly, so it may be higher or lower by the time you read this.)

If you go the extension route, you must close the deal by filing your return no later than August 15. If you know right now you still won't have gathered together what you owe, relax. You can still arrange for installment payments when you file.

If you fail to file or extend, the IRS will be delighted. You'll be charged the failure-to-file penalty until it hits 25% of what you owe. For example, if your unpaid balance on April 15 is $8,000, you'll rack up monthly failure-to-file penalties of $400 until you "max out" at $2,000. After that, you'll be charged interest until you settle your account (as mentioned, the current rate is .83%).

Save Your Bacon With an Installment Agreement
You get the idea on why filing or extending is crucial. But you ask: When do I have to come up with the balance due? The general answer is as soon as possible, so you can halt the IRS interest charges. If you can borrow at a reasonable rate, do it and pay off the government by April 15 when you file or extend.

Alternatively, you can usually arrange to borrow from the IRS by requesting permission to make installment payments on your tax bill. Do this by filing Form 9465 (Installment Agreement Request) with your 2003 return — either on April 15 or by August 15 if you extend.

Form 9465 is simple. (Really.) You suggest your own terms. For example, if you owe $4,000, you might offer to pay $200 on the first of each month. Approval is generally automatic if you owe $10,000 or less and propose a repayment period of 36 months or less. You are supposed to get an official answer within 30 days of filing Form 9465, but it sometimes takes a bit longer. (After all, this is the government.) On approval, you'll be charged a $43 "setup fee."

For higher amounts or longer repayment periods, the IRS may require some financial information, but the agency has generally been quite reasonable in these circumstances.

As long as you have an unpaid balance, you'll be charged interest (currently at .63% a month), but this is often much lower than you could arrange with a commercial lender.

Warning: When you enter into an installment agreement, you must pledge to stay current on your future taxes. The government is willing to help with your 2004 liability, but it won't agree to defer payments for later years while you're paying the 2004 tab. For example, if you are still paying off your 2003 tax bills, forget about an installment deal for 2004.

Paying With a Credit Card
As you probably know, you can now pay your tax bill with Visa, MasterCard, Discover or American Express. But before you pursue this option, make sure to ask what kind of one-time fee your credit card company will charge and the interest rate. You may find the IRS installment payment program is a better deal.

Short-Term Solution
Maybe the reason you can't pay is strictly because of a short-term cash crunch. If that's your story, file by April 15 and pay what you can. The IRS will bill you for the balance. That should take at least 30 days. Then pay when you get the notice. You'll be charged interest. But that always happens when you defer payments, except with those amazing deals on furniture.