5 Cool Tips for Managing Your IRS Debt
The IRS is seen by most as a cold, bureaucratic institution who wants nothing more than to pummel tax payers over the heads with a tax bill. This sentiment is of course true when you owe the IRS and they come after you, but on the flip-side, many people smile each year when the IRS sends them a check. It’s all about balance. It is also important to remember that if the IRS doesn’t collect the taxes, it fails in its overall mandate of funding the government.
This mandate causes the IRS to be creative and sometimes helpful to people who owe. The recent Fresh Start initiative for example is one way in which the IRS tries to work with individuals and businesses to settle taxes owed and better manage their tax affairs.
The initiative also comes with some solid tips and advice too; let’s explore a few of these below:
1. Request additional time to pay: the IRS has stated that as an institution it recognizes the struggles that taxpayers are having – especially in light of the struggling US economy. The advice here is that instead of burying your head under the sand, you should approach the IRS and ask for an extension. You can receive at a minimum a period of 120 days to settle your tax bill and this can be done via the IRS main website or over the telephone.
2. Pay in installments: the IRS actually facilitates payment via installments. Unlike option #1 above this gives you a greater period of time to settle the outstanding amount in full. Interest charges may apply of course, but under the new Fresh Start initiative some taxpayers can get up to 72 months to settle their debts. The official term for this type of installment is ‘streamlined installments’
3. Use a loan: late payments and such like attract penalties. The IRS advises that rather stall on your payments and miss deadline a better solution is to get a loan and pay off the tax bill in full. The interest charges on loans are a lot less than the interest penalties and other fines that the IRS can levy against delinquent taxpayers.
4. Use your credit card: if you have some room on your credit card, the IRS advises that you stick your tax bill on there and pay it off in full. Like the loan scenario outline above, the credit card interest charges may be a lot less than what is charged by the IRS on late or unpaid taxes. This strategy is also good because credit cards are very dynamic in terms of financing. You could for instance switch providers and refinance and outstanding balance on your credit card; depending on the refinancing rates.
5. Save on users fees when you can: usually the IRS levies a user fee when it grants an installment agreement. The standard one-off charge is $105 but you can save $53 when you elect to have the repayments deducted directly from your bank account. Low income individuals can also check to see if they qualify for reduced fees and rates as low as $43 are available.
6. Online payment agreement: taxpayers who owe less than $25,000 to the IRS (taxes plus interest and [penalties), are able to access an installment agreement online without the need for rigorous checking. This arrangement is good because it negates the need for the submission of detailed financial records.
Finally, the IRS won’t encourage you to do it, but seeking the help and advice of a qualified tax professional is always a smart approach to handling your debt with Uncle Sam. They won’t try and cheat the IRS out of the money you owe, but often they’ll be able to spot loopholes that allow you to either pay less or get more time to pay outside of the stated time frames.