When you owe the Internal Revenue Service money and are unable to pay it off all at once, you may be able to work out a payment plan. What you must not do is ignore what you owe and hope it’ll go away. That is a mistake that could prove extremely costly. If you find yourself in a predicament where you owe money to the IRS, don’t put it off.
If You Fail to Act
If you fail to take the necessary steps to set up a payment or installment plan, the IRS has the power to get that money from you in any manner of their choosing. They might place a lien on your home. They may freeze your bank accounts or other assets. They might even garnish wages from your paycheck or take away tax refunds, which you may be expecting to receive.
Not only will you feel the financial pinch when the IRS garnishes your wages or freezes your assets, but you will also see your credit score take a big hit. A significant decline in your credit rates could lead to insurance rate hikes and a possible increase in credit card interest rates on loans and credit cards. The best way to prevent these types of hits to your financial situation is to take advantage of the programs IRS has in place to pay off what you owe.
What Are Your Options?
The IRS is required to collect overdue taxes within 10 years from the date on which the tax return is filed. You may be able to negotiates a payment plan with the IRS so whatever you owe is paid off by the end of that 10-year period. The first step is to make sure you determine precisely how much you owe. You will be charged a fee to set up the installment agreement depending on how much you owe and what type of agreement you enter into. There is also a new tax amnesty program in the State of Virginia, which you may also qualify for.
You may also be able to enter into an agreement called offer-in-compromise where you can settle the tax debt for less than what you owe. You will need to file the necessary forms and pay a filing fee as well as an initial tax payment. Offer-in-compromise is viewed by many as a last-ditch effort to come to an agreement with the IRS because the agency does expect you to explore all other options before applying for an offer-in-compromise. The IRS will determine your eligibility for this program based on your ability to pay, your income, expenses and your asset equity.
Another option is to pay off your tax debt using a credit card. Some individuals prefer to owe the credit card company money rather than the IRS. That way, you are not charged any penalties. You may also be able to make an online payment if you owe $50,000 or less in taxes and penalties. If you owe under $25,000, you may be able to set your own monthly payment. But, you will be required to pay off the entire amount in five years. If you owe more than $50,000, you may wish to apply for an installment agreement for which you need to apply. The IRS will take a close look at your financial information and decide whether you qualify for an installment plan.
If you owe back taxes and are wondering about which plan or program may be right for you, please contact an experienced Virginia tax attorney to better understand your options and to explore possible solutions.