The best time for tax debt payment is during the tax filing season, but those who missed the deadline can still get a better resolution if they resolve their tax issue early. After April 15th, the IRS begins to charge penalties and interest on all taxes due. Due to interest and penalties, the total amount owed increases monthly.
If you have paid for past years and missed this year’s filing deadline, or have unfiled taxes for past years as well, then getting a resolution for all years will be beneficial to avoid collection actions.
Most taxpayers who have many years of unfiled taxes are unable to pay their full tax liability in a single payment. That is why the most common method of resolving back tax debt is through fixed monthly payments. After the initial payment under the agreement, which is larger than subsequent payments, fixed monthly payments can be made until the entire amount is paid.
Even after qualifying for an Installment Agreement, each month, the IRS charges interest and penalties on the tax amount, so the faster the tax debt is paid, the less a taxpayer pays overall.
Offer in Compromise
Taxpayers who cannot pay the entire amount of tax debt owed may qualify to pay a reduced amount, but the requirements for this IRS program are difficult. Only taxpayers who are in a financial crisis can get their tax debt amount reduced. The IRS considers a taxpayer’s assets and income before approving them for an Offer in Compromise.
Applying for a plan when there is no chance of qualifying is punished with penalty fees by the IRS, so it is advisable for taxpayers to consult with tax professionals to help choose the appropriate IRS payment plan to apply for and prepare their tax case for effective negotiations with the IRS.