IRS
Installment Plans
Tax Payment Plans
Proper Use of Payment
Plans with the IRS
Everyone
runs into financial problems from time to time. If this translates into
tax problems, you need to know
the how to best use IRS installment plans.
Financial
difficulties are a part of life. It is the rare individual that goes
through life and never finds
themselves short for period of time. Issues that can arise can include
health problems, losing a job and so many more. In
such a situation, you can come up short when it is time to pay your
taxes.
If
you cannot meet your tax obligations, the IRS has some good news.
Instead of auditing you and seizing your
property, the agency will let you enter into an installment plan. An
installment plan is basically a three year agreement
whereby you make monthly payments until your tax obligation is
satisfied. In practical terms, this represents a pretty nice
way out of a mess.
If
you enter into an installment agreement with the IRS, you need to
realize something. The agreement is a bad
deal for you. Yes, it keeps the IRS off your back, but the terms are
horrific. You can expect to pay five to six percent
interest on the debt, which is not all that bad. What most people do
not realize, however, is that they are also required
to pay a one percent penalty on the total amount due PER MONTH! Yikes!
For
the purposes of an example, assume you owe $10,000 to the IRS. A
typical installment agreement would require
repayment over three years. The monthly payment would be around $335.
With the interest rate and monthly penalty, you are
going to end up paying $2,249 dollars more than the actual tax you owe.
The interesting thing is the IRS does not try to
hide this fact. If you read their information, the agency clearly
outlines you would be better off paying the bill in full
or as quickly as possible.
If
you are in financial straights, it makes sense to enter an installment
agreement with the IRS. The agreement,
however, should not be viewed as a solution to your tax problem. It
should only be viewed as buying you time until you can
pay off the amount you owe.
Richard A. Chapo is with Business Tax Recovery -
providing information on taxes.
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