It is never a positive situation to find that you owe the government taxes and, even worse, do not have the resources to pay them. The first plan of action should be to look for payment plans and file the tax returns before the deadline. This will help you avoid the 5% penalty on the available balance each month. There will be an additional interest on it as well, which is adjusted after every four months, depending on the Internal Revenue Service’s (IRS) assessments. At this point, your goal should be to minimize the damage by finding an opposite plan that will pull you out of tax misery.
To discuss payment plans with the IRS, you can call them at 1-800-829-1040, and they will assist you to the best of their ability. Additionally, their other options to reduce your tax bill including hiring professional consulting services and following the advice below:
Pay as Much as You Can
Even though you may not be able to pay the entire amount at one time, it is essential to pay as much as possible in the first installment. In turn, a lower remaining balance will significantly reduce the interest and penalty. Also, there is a possibility that the IRS may offer better payment plans to individuals having a lower remaining balance.
Request an Extension of the Tax Bill
Requesting a payment extension is an option if you are unable to pay the tax in due time. Typically, you will have a period of 120 days to pay the taxes after submitting the forms. The IRS may ask you if you want to request a payment extension. Those individuals who have not previously applied for extensions are eligible for an extension option.
Installment Payment Plans
Experts advise that installments are a viable payment plan if you owe less than $50,000 and need more than the allotted 120 days to pay off the tax bill. An online payment agreement form needs to be submitted, which can set up an installment plan up to six years. A one-time setup fee will be charged, which depends on the amount you owe and is usually $30 – $250. The fee can be significantly reduced further for individuals who can set up direct payment plans from their bank accounts.
Another benefit associated with opting for an installment plan is related to the reduction of penalty charges for failing to pay the installment. You will be charged an interest of .33% for failing to pay the installment on your tax bill, rather than paying .5% for a general plan. However, this is only offered to one-time filers.
Apply for Leniency Payment Plans due to Adversity
To ask for a leniency payment plan from the IRS, you will need to authenticate that making this payment would leave you in dire circumstances, including losing your home or other financial sacrifices due to the ongoing crisis. If the IRS approves a leniency plan for your tax bill, you will be given more time to make the payment, and any kind of penalty is waived.
An “Application for Extension of Time for Payment of Tax due to Undue Hardship” needs to be filed and submitted to become eligible. A thorough investigation into your claims is completed before you are offered the remunerations to ensure the leniency payment plans are only sought for in case of eligibility.
Personal Loan
A personal loan is an option if a family or friend is willing to help. There may be people in your life with whom you share a mutual trust who may be willing to waive interest payments that are common in a traditional loan agreement. However, it is still recommended that the terms and payment plan of the agreement are documented and notarized to avoid any inconvenience for both parties. While it may not be one of the most suitable payment options for most people, it certainly can offer some relief from a significant tax bill.
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