Every year Americans are forced to pay up on their taxes. While some might benefit from state and federal tax returns, others are left owing the Internal Revenue Service (IRS). So, what happens if you’re not able to pay the full amount? A tax installment agreement may be the best solution. Much like financing a car or house, installment agreements allow you to pay out the money you owe over a certain amount of time. So, what’s the catch? Negotiating an installment agreement with the IRS isn’t simple.
How to Negotiate an Installment Agreement with the IRS
Trying to secure an installment agreement from the IRS is nearly impossible without the assistance of a knowledgeable tax attorney. This is largely because the IRS doesn’t view itself as a bank. Unlike trying to apply for a loan, installment agreements require a negotiation process on top of the application. Having an experienced tax attorney will help communicate to the IRS that you’re not in a financial position to make a one-time payment.
As for the application process, here are a few installment agreement prerequisites the IRS outlines:
- File all required returns on time
- Filing status
- Valid Social Security Number (SSN) or TAX ID Number (ITIN)
- Proof of physical address that matches filed return
- Date of birth
- Valid email address
The good news? The IRS recognizes your power of attorney. This means, if you decide to hire a tax lawyer for your negotiation, we can apply on your behalf. Of course, we’ll need some information and forms from you, but in the long run, this will take much of the burden off your back!
Short-term vs. Long-term Payment Plans
Short-term payment plans take less than 120 days (four months). Meanwhile, long-term payment plans take up to 180 days (six months). Trying to figure out which plan is suited for your situation?
The IRS lays out the following options depending on your financial circumstances:
- Long-term payment plans: You are an individual that owes less than $50,000 including interest and penalties. Or you are a business that owes less than $25,000 including interest and penalties.
- Short-term payment plans: You are an individual that owes less than $100,000 including interest and penalties.
- Other payment plans: You are an individual or business that owes more than $100,000 including interest and penalties.
Timelines for these plans vary depending on the financial situation. In some cases, these plans last seven years.
Does the IRS Charge Interest?
Yes, the IRS will tack on both interest and penalty fees until the debt is fully paid. It’s tough to say just how much interest you’ll owe given it varies depending on the total amount. The date on which interest starts accruing is one common misconception among all taxpayers. Even if you file an extension, the interest will start being added to your amount from the original due date. It should be noted that an extension only covers you from not owing the money right away. For more information on how interest applies to your tax balance, visit irs.gov.
What Are the Benefits of an Installment Agreement?
The main benefit to an installment agreement is not having to pay the entire amount you owe all at once. Being able to space out your finances and chip away at your owed amount can help you budget for other expenses. Another benefit to these tax payment plans comes in the form of blocking the IRS from taking over other accounts. For example, once your installment agreement is approved, the IRS can no longer enforce collection on your employment wages or personal bank accounts.
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