If you need to, you could enter an installment payment agreement with the IRS making direct deductions from your bank account to pay your taxes. This would be especially important if you owe more than $10,000 in taxes. Failure to do so would result in a lien on your property or garnishment on your wages.
Earlier this month, the IRS announced new rules pertaining to installment payment agreements. If you owe less than $50,000 and can pay off your tax debt over 6 years, you are eligible for a “streamlined” installment agreement which means you do not have to fill out complex forms (previously this only applied to those owing less than $25,000 and who could repay over 5 years). But to take advantage of this installment agreement, you must make you installments via direct deduction from your bank account.
But what if you owe more than $50,000? Then you may still qualify for an installment agreement if you pay off some of your debt to bring the total debt below $50,000. If you cannot pay but still wish to enter an installment payment agreement, you need to furnish the IRS with a collection information statement. The IRS will review this statement and decide whether you are eligible to pay by installments.
If you wish to apply for the installment agreement, there will be a fee imposed unless your agreement sees you pay off your taxes over 120 days or less. The fee is $52 if you choose direct bank deduction, $105 for a standard installment agreement and $43 for eligible low-income taxpayers.
If you are a small business owner or unemployed person, the IRS will now allow you 6 extra months to pay your bill, without charging you the failure-to-pay penalty of ½ of 1% of your bill (0.005%) up to 25%. Interest charges will still apply. But there is a proviso. You must have been unemployed for at least 30 days in 2011 or through April 12 this year. If you are a small business owner, your business must have suffered a minimum 25% drop in business income last year. Also, your income must be $100,000 or less if filing single or as head-of-household and $200,000 or less if married-filing-jointly.
The final option if you cannot afford to pay your taxes is to apply for an offer in compromise (OIC). This is for those who have exhausted all other options in paying their bills. An OIC allows you to settle your tax bill by paying less than what you owe. But not everyone qualifies for an OIC. If you wish to know whether you qualify for an OIC, call us at (813) 229 7100 for a free consultation.