It is never a good idea to owe taxes to the government and, even worse, if you don’t have the resources to pay your tax bill. The first plan of action in such a situation should be to look for payment plans and file the tax returns before the deadline to avoid the 5% penalty each month on the balance. The interest will be added every four months at a rate depending on that year’s tax regulations. At this point, your aim must be to minimize the damage, and the only way to do that is to find a plan that will put you out of tax misery.
To discuss payment plans with the IRS, you can call them at 1-800-829-1040, and they will help you work out a payment plan you can afford. Apart from that, you have plenty of other options to reduce your tax bill by 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 whole amount at one time, it is important to pay as much as you can in the first installment. This will significantly reduce the interest and penalty because of the lower remaining balance. Also, there is a possibility that the IRS may offer better payment plans to individuals having less than a certain amount in the remaining balance.
Request an Extension of the Tax Bill
Requesting a payment extension is one of your options if you cannot pay the tax in due time. Typically, you would get 120 days to pay the tax returns after submitting the forms. The IRS would ask you in case you want to request a payment extension. Those individuals who have not previously applied for extensions are eligible to avail of this facility.
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 will set you up for an installment plan of as much as six years. A one-time setup fee will be charged, depending 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 reducing 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, only one time filers get this privilege.
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. You may even lose your home and may have to offer other financial sacrifices because of the ongoing crisis. If the IRS approves a leniency plan for your tax bill, that would be the best scenario for you. You will be given more time to make the payment, and any penalty is also waived.
There is an “Application for Extension of Time for Payment of Tax due to Undue Hardship” that needs to be filed and submitted to become eligible. There is a thorough investigation into your claims before you are offered the remunerations, so ensure that the leniency payment plans are only sought for in case of eligibility.
Personal Loan
A personal loan can be your best bet against the IRS, considering a family or friend may be willing to help. Some people in your life trust you, and you trust them equally in return. You would not have to worry about interest payments in such an agreement. However, it is still recommended to at least notarize the deal and discuss a payment plan to avoid any inconvenience for both parties. While it may not be one of the most suitable payment plans for most people, it can certainly offer some tax bill relief.
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