SolveYourProblem
Article Series: Taxes
Help Me Understand My Taxes
Payment
Options When You Owe Money To The IRS
As that April 15 tax deadline approached every
year, many people get caught up in tax refund fever, and spend
most of their time worrying how they’re going to spend that
refund check. Many other people, however, wish they had such
worries. Millions of people end up owing the IRS money every
year, and hundreds of thousands of those people owe more than
they can afford to pay in one go. If this sounds like you,
don’t worry. There are a number of payment options available
to you to make your tax bill more manageable, and it doesn’t
have to involve exorbitant fees or become a credit nightmare.
The
first trick of the trade is to always get your return in
on time, whether or not you can actually pay the bill. If
you don’t file for whatever reasons, including not having the
money to pay your bill, then the IRS charges you a failure
to file interest rate of 5% on you the money you owe, and that
interest will continue racking up until it hits 25%. If you
file but don’t pay, you will only be charged .05% interest.
The IRS does offer tax-filing extensions, but they are only
filing extension. When you request the extension, you must
still estimate your tax liability and send in a check for that
amount. If you must file for an extension and can’t pay your
entire tax bill, then try to at least send in a portion of
it. You won’t be off the hook interest wise, but you will mitigate
your damages by lowering the total outstanding amount.
Once your return is prepared and you know what exactly you
owe Uncle Sam, there are a few ways you can try to pay. First,
check out your credit cards. Can you borrow money off your
cards to pay your tax bill? Compare your credit card interest
rate and the IRS interest rates and penalties and see who it
is cheaper to get into debt with. If you think your financial
trouble is going to clear soon and that you will be able to
pay off your credit card loan quickly, then plastic may be
your best bet.
If credit cards are not an option, then investigate the installment
payment plans available through the IRS. If you’ve always filed
and paid on time in the past and your tax bill is less than
$10,000, then the IRS is legally obliged to allow you to pay
by installment. If your tax bill is larger, or if this isn’t
the first time you haven’t been able to pay your bill, qualifying
for an installment plan may be a little trickier. At the end
of the day, however, the IRS wants to get their money, and
if letting you pay by installment means they’ll be able to
collect, then they’re going to make a deal. You must be able
to pay off the entire bill within three years, and the IRS
can terminate the agreement at any time.
The last option is to arrange an offer
in compromise (OIC) with the IRS. An OIC is like a credit card settlement; you
agree to make a lump sum payment that is less than your total
bill, and the IRS writes the bill off as paid. This is the
IRS’s least favorite plan, and if you go this route, be prepared
for plenty of paperwork, pleading, and a $150 fee.
Not being able to pay your tax bill is not the end of the
world. Meet the burden head on and choose a payment option
that will clear your bill and save you a lot of sleepless nights.
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SolveYourProblem.com : 2007
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