Do you owe a tax debt to the IRS? If you ask someone what his greatest nightmare is, many people will tell you it is receiving a letter from the IRS. A close second is owing the IRS and not being able to pay them.
A troubling thought, isn’t it?
It can make even a healthy stomach sour. But it doesn’t have to be that way, even if you are cash-strapped and owe money to the IRS. You do not have to make a lump-sum payment immediately to satisfy the IRS; you have other options.
Reduce Interest and Avoid the Failure-to-Pay Penalty
The last thing the IRS wants you to do is not pay them. Unless you have a good reason for not paying your tax bill on time, the IRS considers nonpayment as willful neglect. Failing to pay the IRS by the due date could result in being charged a penalty of up to 25 percent of your unpaid taxes.
In addition to the failure-to-pay penalty, there is interest. The IRS will impose a penalty of one half of 1 percent of your unpaid taxes. Interest is calculated as a monthly percentage of your outstanding balance.
Here are a couple ways to set up a plan and pay off your tax debt.
Partial Payments and Short-Term Extensions
A short-term extension may be the right choice for you if you can pay the balance of your tax debt in less than six months. When you make a partial payment to the IRS, you avoid the costly failure-to-pay penalty and can reduce the interest on the outstanding balance. Unlike the other payment methods, there are no fees associated with this type of tax payment agreement.
You should do the following to make a partial payment and apply for a short-term extension:
A long-term monthly payment plan is a good option if you cannot pay your full balance in fewer than six months. If you owe $50,000 or less in taxes, penalties, and interest, you can apply online.
People who set up their accounts online can:
If you owe more than $50,000, contact the IRS by phone or download, complete, and mail an Installment Agreement Request and Collection Information Statement. Before you select an installment option, make sure that all of your taxes have been filed—including previous years. Have your financial information handy. The IRS has the option of reviewing and verifying your financial data.
The maximum time for installment agreements is 72 months. There is a one-time fee to set up an installment agreement:
Owing money to the IRS does not have to be your worst nightmare. You can make arrangements to pay your tax debt to them before interest and penalties compound the problem. If you’re unsure how to get started, contact a nonprofit credit counselor for help. Cut your cost dramatically, ease your fears, and set up a payment plan that works for your budget. You’ll rest easier.
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Filed Under: Taxes
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