For a number of individual taxpayers who find they owe the IRS, the tax bill might be more than they can afford to pay by the annual tax deadline. Even if you cannot afford your tax liability, you must be sure to file your tax return on time. At the same time, you must address the tax debt and determine the best option available to pay it off with minimal penalties and interest. Consult with your tax professional or accountant, such as Precision Financial Services in Yucaipa, CA, to determine the best repayment strategy based on your particular circumstances.
First, it is important to understand that ignoring tax debt does not eliminate the problem, but can result in severe collection methods. The IRS can put a federal lien on your property, freeze any bank accounts, seize tax refunds and even garnish your wages. Not only can this negatively affect your credit score, it can also damage other areas of your financial life. Therefore, it is important to explore the options available to stay compliant with the IRS, even during your repayment period.
Here are the 8 steps to keep in mind as you work with the IRS to determine the best repayment option for your particular circumstances.
Determine the Total Amount Owed
By checking your tax return and determining how much you owe, you can find the repayment plan that fits your situation best. If you are current on all of your filings and payments from previous tax periods, then the IRS is likely to accept your payment plan. There are additional fees for setting up the plan and the IRS may also charge additional interest. However, keep in mind that the IRS can conclude that you can afford to pay the full bill now, in which case, they will reject your payment plan.
Offer in Compromise
This program is designed to allow you to make the IRS an offer for less than you owe but with terms that will allow them to receive the reduced amount sooner. There is a fee and you must make the initial payment with your application. If the IRS determines that is the most they could collect from you within a reasonable period, they may accept the terms and thus forgive a portion of your tax debt.
Pay with a Credit Card
If you are late paying the IRS, there are interest and penalties that result until the bill is paid in full. By using your credit card, you may pay less interest but you will also avoid the penalties. Your payment will need to be processed by an approved provider and there will be a small convenience fee that is based on your bill. However, this allows you to then make a payment that is more budget-friendly.
Fresh Start
If you did not file at all, then you will have a failure to file penalty as well. By applying for the Fresh Start program, you can have this penalty waived for up to six months. However, your total tax liability must be less than $50,000.
Request an Installment Plan Online
The IRS offers the option of applying for an installment plan using the online payment agreement (OPA) application. This plan will decide how much your payment will be if you owe less than $25,000. Keep in mind that the balance must be paid off in 5 years.
Installment Plan for Large Balance Due
For those individuals who owe more than $50,000, the IRS will want to review your financial information to determine if you qualify for an installment plan. The fees for this plan may vary and it is based on IRS approval.
Hire a Professional
While the IRS has streamlined many of its processes in light of the recent recession, there are still areas where a tax professional can be a great resource. Therefore, it might be a good strategy to hire a tax professional to assist in negotiating with the IRS to lower your tax bill or to set up payment plans.
Keep Up to Date
The most important step is to keep current with your tax filings and payments for both past and current years. For those who are self-employed, you can make estimated tax payments right to the IRS using a Form 1040-ES. Finally, it is important to remember that working with the IRS is the best route to eliminating your tax liability.
Click on the link below to contact one of the tax professionals at Precision Financial Services in Yucaipa, CA, to determine the best options for you based on your tax debt and current circumstances.
Precision Financial Services