With the new tax laws in 2018, you may experience a large tax bill if you didn’t increase your federal withholding. As an example, people with employee business expenses will not be able to deduct these expenses in 2018 that they were able to deduct in 2017. You could owe thousands of dollars more.
So what do you do if you can’t pay this increased amount when you file your taxes? You have several options that can help you resolve your tax liability. Options the IRS allow include, Installment Agreement, Partial Payment Installment Agreement, Currently Not Collectable, and Offer In Compromise. Most people can use one of these options.
If you owe less than $10,000, you can set up a guaranteed Installment Agreement without even speaking to someone at the IRS. You apply online at IRS.gov. The minimum payment is $25. There are several requirements to qualify for a guaranteed Installment Agreement.
First, this only applies to income tax you owe. Payroll tax and other taxes don’t qualify. You must have filed and paid all taxes for the five previous years. Be unable to use an immediate source like a savings account to pay the bill. Pay the tax fully within three years. You can’t have had an Installment Agreement within the last five years. You must file and pay all tax returns when required during the period of the Installment Agreement.
If you owe more than $10,000 but less than $50,000, there are options for you also. Streamlined Installments. There are two tiers. The first tier is if you owe less than $25,000. You must call the IRS, but they won’t require a collection information statement. If you owe between $25,001 and $50,000 a collection information statement is required. You must set up a direct debit from your checking account for both these options.
The Streamlined installment requires tax liability must be paid in 84 months or less. There are qualifications for both tiers of the Streamlined Installment. The IRS will charge fees to set these up also. You can call the IRS and set up an Installment Agreement to make payments but remember interest and penalties will not stop during the installment period.
It may be a good idea to determine if the interest on a loan would be better than paying penalties and interest to the IRS. You might even use a credit card if the interest is less than what you’d have to pay the IRS.
You may also use an expert tax pro to further reduce your payments to the IRS by taking advantage of savvy strategies. For people who have accumulated a large amount of tax debt, an Offer In Compromise may be the best option. An Offer In Compromise is a method where the IRS settles for a portion of the amount owed.
David Zubler is the author of three books and a philanthropist. All of his proceeds from the books go to a charitable foundation he created for underprivileged children. He is also the founder of Your Tax Care which provides tax education.