Do You Owe the IRS Money?
Are you one of the unfortunate taxpayers owing the IRS money? Are you having trouble paying those taxes? Well, the IRS has implemented some payment options to help taxpayers settle their tax liability. Here are six tips to help fulfill your tax obligations without adding unnecessary burden.
- Electronic Funds Transfer You can pay the balance by electronic funds transfer, check, money order, cashier’s check, or cash. You can also settle your tax liability with a credit card. The interest rate on a credit card could be lower than the combination of interest and penalties imposed under the Internal Revenue Code.
- Additional time to pay Based on your circumstances, you may be granted a short additional time to pay your tax in full. A brief additional amount of time to pay can be requested through an Online Payment Agreement application or with the help of a CPA.
- Installment Agreement If you owe $25,000 or less and cannot pay your tax liability in full at the time it is due, you may request an installment agreement in which you pay the liability in monthly installments. However, you must file all required tax returns before an agreement can be offered. Consult with your tax professional to discuss the available options regarding an installment agreement.
- Collection Information Statement Even if you owe more than $25,000, you could still qualify for an installment agreement if you complete Form 433F, a Collection Information Statement. The IRS will review your assets and income to determine your ability to make payments.
- Tax bill payments If you receive a bill for unpaid taxes, you are expected to pay the tax due including any penalties or interest. In the event you cannot make these payments, taking out a loan to pay the bill in full is probably a better option than making installment payments to the IRS. Before you pay, make sure the IRS notice is correct since the IRS can make mistakes in processing.
- Paycheck withholding Taxpayers with a balance due may want to consider changing their W-4, Employee’s Withholding Allowance Certificate, with their employer. This increases your payments throughout the year, making any balance easier to pay off.
Ideally, it is best to budget and pay taxes when due to avoid interest and penalties, but there are options that will keep you out of jail.