The Basics of Installment Agreements
After people have filed for their annual tax return, they become aware that they owe the IRS a substantial amount of money. What makes matters worse for them is recognizing that they do not have adequate funds to cover all these tax debts. Good thing that this kind of IRS problem is made much more manageable because of the presence of a number of options for the taxpayers. Among these is the setting up of an installment agreement.
In setting up the installment plan, the IRS permits you to identify your monthly due and which date it is has to be settled. In fact, the IRS will more likely approve your request if your tax bill doesn’t go beyond $10,000, have filed your returns and paid your taxes in a timely manner and have proven that you don’t have that much money available. The only major concern is that the provisions in your installment plan should sufficiently cover all your tax dues in three years. Applying for one is as easy as accomplishing Form 9465 (Installment Agreement Request Form) and attaching it to your tax return.
The IRS may offer the option to make partial payments of tax liability in instances when the taxpayer is really financially strapped. Those who avail of this option are required to give specific financial details regarding their equity assets. It is important that the pieces of information provided are consistent and correct as these will be verified by the IRS. Also, the IRS will recheck every two years if the taxpayer is now in better financial standing. If so, then there is a probability that the monthly payment will be increased or the agreement will be terminated, altogether. Although slightly different, this type of understanding is an installment plan nonetheless.
The only disadvantage of installment options is the fact that the longer you extend your payment agreement, the more money you will be required to pay the IRS. This is because you are essentially buying time from the IRS to pay the amount you owe them. These options also don’t go without costs. The one-time fee for an approved installment plan is $105. If you choose a direct debit agreement, which requires you to debit monthly payments from your bank account, the fee is lowered to $52. If you qualify for the lower income bracket, the fee is considerably reduced to $43.
Some people may take installment plans as an appealing option but other taxpayers feel differently. For them, the better solution is an Offer in Compromise, or OIC, which allows them to lessen their total tax dues as the remaining percentage is forgiven. However, if tax problems necessitate the use of any of the mentioned strategies, it is always best to seek professional assistance regarding this matter.
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