This tax season has brought surprises. Some taxpayers have found that they didn't withhold enough or didn't pay enough on their estimated payments. Others were affected by the state and local tax deduction cap.
The IRS has acknowledged that the changes enacted by the tax reform made it challenging for many taxpayers to accurately calculate their taxes. It could be easier for many to get underpayment penalties waived in 2019. In this post, we address three options when you cannot write a check to cover the balance owed.
The IRS is willing to work with you to set up a payment plan when you cannot pay your tax bill in full. While interest and penalties continue to accrue, an installment agreement provides some breathing room.
Two main options exist:
- Short-term (less than 120 days) plans – these are generally free when paid via automatic debit, check or money order.
- Long-term installment agreements (for individuals with less than $50,000 in tax debt including penalties and interest) – set up costs vary based on whether or not you can set up a direct debit.
You can apply for these plans online and may ask to update them if circumstances change.
Compare interest rates when considering whether to pay taxes with a credit card. This option can be cheaper, if you have or qualify for a low rate or 0 percent card. Paying in full with a credit card can avoid IRS late payment penalties (.5 percent every month up to a maximum of 5 percent) and interest (currently 6 percent in 2019).
Offer in Compromise
When your circumstances have changed significantly, relief options exist. An illness that prevents you from working or business failure, may put you in a place where you will never be able to pay back the amount you owe. In these types of situations, it is possible to make an offer in compromise to settle for less than you owe.
If tax problems have been compounding for several years, get advice from a tax attorney. A tax professional can often help you negotiate a long-term solution.