Not being able to afford the full payment on tax liability is an unfortunate but common scenario. It may be because the amount was more than you expected, or simply because there’s an issue with liquidity regarding your funds at the moment. There are available tax resolution strategies for this problem. Installment plans are among the most viable options you can choose to pay off your tax liability.
What’s an Installment Agreement?
The name is already a giveaway regarding the concept behind it. An installment agreement allows you to pay your tax debt in installments, thus giving you more time to raise money and structure your payments. The good thing about choosing an installment agreement is that it prevents the IRS from levying additional penalties on your account. Interest will still run, but at least you won’t have to worry about the IRS coming against you with more punitive measures like a levy.
Installment Agreement vs. Offer In Compromise
An installment agreement is different from an offer in compromise. For one, there’s no reduction of your tax debt in an installment agreement. Your debt will remain the same, plus whatever interest is due on it. In an offer in compromise, however, there is a reduction of the debt, made possible by the fact that you offer to pay a lower amount to the IRS. An offer in compromise may also be made through installment payments, but the latter usually has a shorter duration than most installment plans.
Cost
The major advantage of an installment agreement is cost. Simply put, installment agreements are cheaper than offers in compromise, at least in terms of the initial application cost. Also, they are generally easier to secure than offers in compromise.
Application
Applying for an installment payment is simple. You can apply through email, phone, or even through the mail. If you’re qualified, the IRS will set up an installment agreement for you, including the method of paying. The most preferred method of paying is through direct debit but there are other options if this isn’t possible for you.
If you want to know whether an installment plan is a viable option for you, talk to your trusted tax lawyer to find out more about it. There’s also a lot of information on installment plans on the IRS website.
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