As we noted in the previous blog, the IRS has 10 years to collect any tax due. So you're going to have to deal with this sooner or later, and interest and late payment penalties will continue to accrue while you figure out how you are going to pay your tax debt!
The first option is straightforward €" pay off the entire amount owed, or at least send in a much as you can with the notice. You have 120 days to make this lump sum payment. (Even the IRS suggests that you look into paying with a bank card or bank loan because the interest rate and any applicable fees your credit card company or bank charges may be lower than the combination of interest and penalties imposed by the Internal Revenue Code.)
If you are unable to immediately pay your balance in full, then one of the Installment Agreements may be appropriate for you: they allow you to set up a monthly payment plan to pay taxes owed. However, each Agreement has requirements you must meet, there is a fee involved in setting up the agreement, and Interest and Late Payment penalties will continue to accrue while you make the payments. Also, you must agree to file all returns on time and pay your taxes on time in the future. Here are the general requirements for each - other restrictions may apply:
Guaranteed Installment Agreements €" use this if you:
o Have a balance amount that is due is $10,000 or less
o If you haven't filed or paid late previously
o All your returns are filed
o You are able to pay off your balance in 36 months or less
o You've had no previous installment agreement
o Can afford a minimum monthly amount of balance due divided by thirty
Streamlined Installment Agreements €" use this if you:
o Have a balance amount that is due is $25,000 or less
o If you haven't filed or paid late previously
o All your returns are filed
o You are able to pay off your balance in 60 months or less
o You've had no previous installment agreement
o Can afford a minimum monthly amount of balance due divided by fifty
Partial Payment Agreements
€ If you can't make the minimum payments of the previous Installment Agreements, you may want to look into this, as the payment plan is based on what you can afford after taking into consideration your essential living expenses. It also has the advantage of a longer repayment term. But be aware:
€ The IRS may file a federal tax lien, which may affect your credit rating
€ You must report your average income and living expenses for the past 3 months, plus provide paystub statements and other supporting documentation.
€ The IRS routinely re-evaluates the terms every two years to see if you might be able to pay more.
€Non-Streamlined€ Installment Agreement €" use this if:
€ Your balance is over $25,000
€ You need a repayment term for more than five years
€ You don't meet any of the criteria for a streamlined or guaranteed installment plan
Again, be aware that this route will most likely result in a federal tax lien, and there will be financial papers that have to be supplied to an IRS agent so they can analyze the most you can afford to pay each month.
In our next Blog, we'll cover the other three options for settling your tax debts:
Offer in Compromise
Not currently collectible
Filing Bankruptcy
As with any tax problems, taxpayers should seek the advice of a licensed tax professional. For more information, see: http://www.millertaxlaw.com
The first option is straightforward €" pay off the entire amount owed, or at least send in a much as you can with the notice. You have 120 days to make this lump sum payment. (Even the IRS suggests that you look into paying with a bank card or bank loan because the interest rate and any applicable fees your credit card company or bank charges may be lower than the combination of interest and penalties imposed by the Internal Revenue Code.)
If you are unable to immediately pay your balance in full, then one of the Installment Agreements may be appropriate for you: they allow you to set up a monthly payment plan to pay taxes owed. However, each Agreement has requirements you must meet, there is a fee involved in setting up the agreement, and Interest and Late Payment penalties will continue to accrue while you make the payments. Also, you must agree to file all returns on time and pay your taxes on time in the future. Here are the general requirements for each - other restrictions may apply:
Guaranteed Installment Agreements €" use this if you:
o Have a balance amount that is due is $10,000 or less
o If you haven't filed or paid late previously
o All your returns are filed
o You are able to pay off your balance in 36 months or less
o You've had no previous installment agreement
o Can afford a minimum monthly amount of balance due divided by thirty
Streamlined Installment Agreements €" use this if you:
o Have a balance amount that is due is $25,000 or less
o If you haven't filed or paid late previously
o All your returns are filed
o You are able to pay off your balance in 60 months or less
o You've had no previous installment agreement
o Can afford a minimum monthly amount of balance due divided by fifty
Partial Payment Agreements
€ If you can't make the minimum payments of the previous Installment Agreements, you may want to look into this, as the payment plan is based on what you can afford after taking into consideration your essential living expenses. It also has the advantage of a longer repayment term. But be aware:
€ The IRS may file a federal tax lien, which may affect your credit rating
€ You must report your average income and living expenses for the past 3 months, plus provide paystub statements and other supporting documentation.
€ The IRS routinely re-evaluates the terms every two years to see if you might be able to pay more.
€Non-Streamlined€ Installment Agreement €" use this if:
€ Your balance is over $25,000
€ You need a repayment term for more than five years
€ You don't meet any of the criteria for a streamlined or guaranteed installment plan
Again, be aware that this route will most likely result in a federal tax lien, and there will be financial papers that have to be supplied to an IRS agent so they can analyze the most you can afford to pay each month.
In our next Blog, we'll cover the other three options for settling your tax debts:
Offer in Compromise
Not currently collectible
Filing Bankruptcy
As with any tax problems, taxpayers should seek the advice of a licensed tax professional. For more information, see: http://www.millertaxlaw.com