Chances are if you are behind on your financial obligations, such as credit cards and loans, you're also not current on your tax payments. Negotiating an installment agreement with the government to pay off your back taxes can be a viable option that could help you climb out of debt and keep Uncle Sam from nagging you.
Successfully negotiating an installment agreement in order to improve your tax situation can be done by following these three steps:
Before you decide to take advantage of an IRS installment loan, make sure that you're ready to approach the government with your proposal. You must be current on filing your tax returns. And if you are self-employed, you must be up to date on your quarterly estimated tax payments.
Make certain that you can find money in your budget to make your monthly payment. Once you negotiate an installment agreement, you are bound to pay on a monthly basis and will go into default if you don't, compounding your debt trouble. The good news is that the minimum payment is just $25. Also budget for one-time fees to set up the payment plan, ranging from $43 to $105.
When you owe $50,000 or less in combined individual income tax, penalties and interest, you can apply online for an installment agreement that will spread the payments over 72 months (six years).
If you owe more than this threshold, you'll have to call the IRS, and there is additional paperwork to complete (the Collection Information Statement/Form 433-F). This statement is reviewed by an IRS collector, who will use the information to determine how much you can pay toward your back taxes.
While making payments to Uncle Sam is certainly no fun, it is a relief to know that you have a plan to pay off your back taxes so that you can get out of debt and get on with life.
About the Author:
Julie Bawden-Davis is a Southern-California-based writer specializing in personal finance and insurance. Since 1983, her work has appeared in a wide variety of publications, including Family Circle, Ladies' Home Journal, Parenting, Entrepreneur and The Los Angeles Times.