Tax BillHow to Handle your Tax Bill

Tax Bill on your mind? Now that you have filed your taxes for 2016, you may be wondering how you are going to pay your tax bill. If you were not expecting to owe and do not have the funds on hand to pay, there are a few things that you can do to help your situation.

Do Not Delay

Do not think that just because you cannot immediately pay the money you owe you should ignore your debt. You will start to accrue interest and penalties each day that you do not pay after April 18th.

  • Interest: Interest on late taxes is assessed in three-month increments. For the first two increments, you will be charged an additional 4% on top of what you already owe.
  • Penalties: The IRS assesses a penalty for every month or increment of a month that your tax bill is left unpaid. Typically this penalty is 0.5% of your bill. You can have this penalty waived if you show the IRS that you have a good reason for not paying your bill on time. However, the IRS has to think that your reason is legitimate, just saying that you did not have the money on hand will not be sufficient.

Structured Installment Payment Agreement

The best way to defer your payment is by setting up a structured installment payment agreement with the IRS. You can request for this if you owe $50,000 or less in taxes, interest and penalties and you filed your tax return on time. You can submit this request online or with a Form 9465.

However, if you are granted a payment agreement you will have to pay a one-time fee of $120 if you are going to pay by check, credit card, or payroll deduction. If you pay by direct debit from your bank account the IRS may lower the fee to $52.

If you can pay your tax bill within 120 days of the due date you are not required to set up a payment agreement, however, you will still have to pay any interest and penalties accrued during that time.

 

Offer in Compromise

If you end up with an extremely large tax bill that you do not think you would ever be able to pay you can negotiate with the IRS for a reduced tax bill.

You start the process by using the IRS’ Pre-Qualifier Tool to see if you are eligible. You must do this through a paper filing and pay a non-refundable $186 fee. You must also send a payment with your application. The amount of the payment will be based upon the payment option that you choose. If you want to pay off your debt in one lump sum you will have to include 20% of that amount with your application. If you wish to pay off your debt in monthly installments you will need to include the first month’s payment with your application. You will also need to continue making these monthly payments while your application is under review.

This process can be tricky and it is hard to get approved. If you think that an offer in compromise is the best option for you meet with a qualified and Experienced Professional who can help you prepare the paperwork.

Overview

If you find yourself owing a large amount to the IRS avoiding the problem is not the answer, it will just make your situation worse though interest and penalties. If you are not sure how to pay off your tax bill meet with your qualified tax professional who can help you to implement one of the above-mentioned plans. With proper guidance and planning you can pay off the taxes you owe quickly and with as few fees as possible.