Luckily, the 2010 tax season has passed and some were fortunate enough to get by unscathed. But what about those who end up owing the IRS more than they can afford to pay? It is more common than you would think for hard working taxpayers to end up becoming financially strapped because of taxes. For those who are faced with a choice of losing their home due to missed mortgage payments or not paying their taxes, neither option leaves the consumer unharmed. The IRS does not tread lightly on those who fail to make their tax payments. However, there are some options available that allow the consumer to satisfy their responsibility to the IRS while maintaining other financial obligations.
IRS Payment Options
For those that will be able to make their full payment over a course of 120 days, the IRS allows a short term extension. Typically, there will be no penalty fee for individuals that are approved for a short term extension, but they may still be subject to interest fees. A more popular method for paying your tax debts is through an installment payment plan. The IRS may approve you for an installment plan if you (1) owe less than $25,000 and (2) are current on filing your tax returns. Self-employed individuals must be current on their quarterly estimated tax payments in order to receive approval for an installment plan. Those requesting installment plans will be subject to a one-time application fee of $105, or $52 if using a direct deposit system for payments. It is important that anyone using a tax installment plan be able to afford the monthly payments. Defaulting on a tax installment repayment plan can bring serious consequences, such as facing penalty fees and risking legal action. A less common option is an offer in compromise ,in which the IRS agrees to accept less than the amount owed. These cases are rare and require proof of extenuating circumstances leading to a financial hardship. This option is a last resort method for anyone needing to pay their IRS debts without the finances to do so.
The IRS allows consumers some flexibility in paying tax debt. It is important to review your options with a qualified tax professional. There can be drawbacks to any of the repayment options and it is best to consider your financial situation when deciding between payment options. For example, the IRS installment plan will subject the consumer to interest on the amount owed. Typically, this interest rate can be as high as 10%, which can leave the consumer paying significantly more than their original debt. Also, be cautious when reviewing your options for IRS debt repayment. Any agreement that is reached must be approved by the IRS, not a negotiating agency. Do not accept any repayment plan agreement unless it is written and authorized by the IRS. There are many companies claiming to have your tax debts “erased”, just remember the IRS has the final authority to approve your debt repayment plan.