At the time of filling out your tax returns, if you owe more than you can pay, you can avail installment facility. This facility helps individuals and businesses manage their tax liabilities. It allows taxpayers to pay their tax debt over time in manageable monthly installments.
By availing this facility, you can divide your
tax into monthly installments that you can pay easily. But the question is how
you can do this and what benefits it will provide you with. In this blog, we
will jot down some of the most important tips that will help you reach a tax
installment agreement with the IRS.
Keep reading these tips carefully to find useful
insights.
1. Understand Your Tax Debt
Before pursuing a Tax Installment Agreement, it's
essential to have a clear understanding of your tax debt. This includes the
total amount owed, any accrued interest and penalties, and the tax years
involved.
You can obtain this information from your tax
returns, IRS notices, or by contacting the IRS directly. Understanding the
specifics of your debt will help you negotiate effectively and choose the most
suitable IRS installment agreement plan.
2. Choose the Right Type of Agreement
The IRS offers different types of installment
agreements, each tailored to specific financial situations. In most states,
these types of agreements include guaranteed installment agreements,
streamlined installment agreements, and partial payment installment agreements.
A guaranteed installment agreement option is
available if you owe $10,000 or less in combined tax, penalties, and interest
and you have filed all required tax returns. This type of agreement is usually
approved automatically.
A streamlined installment agreement involves an
option in which you owe $50,000 or less and can pay off the debt within 72
months. Approval for this type of agreement will require no detailed financial
information.
The partial payment installment agreement is for those who cannot pay the full
amount within the allotted time frame. It allows you to make smaller monthly
payments, but you will need to provide detailed financial information to
demonstrate your inability to pay in full.
3. Prepare Financial Documentation
Regardless of the type of installment agreement
you pursue, you will need to provide detailed financial information to the IRS.
This information will include your income statements, asset documents, expense
documentations, and any other relevant financial documents.
Accurate and thorough financial documentation is
crucial for the IRS to assess your ability to meet the terms of the agreement.
So, make sure you have gathered all the required documents to be eligible for
the installment agreement.
4. Comply with the Agreement
Many installment agreements also get canceled
after the agreement has been approved. So, you will have to take special care
even after the agreement to keep your agreement valid and make sure to adhere
to agreed-upon terms.
This includes making timely monthly payments and ensuring that you stay updated on any future tax obligations. Unfortunately, if by any means, you fail to comply with the terms of the agreement, it can lead to the IRS terminating the agreement and pursuing further collection actions.