Entering into an installment agreement with the IRS may seem like a great idea at first glance; however, it should be thought through carefully. If your application is approved, you may be permitted to make monthly payments in accordance with the terms of your installment agreement with the IRS. The installment agreement allows you to pay your tax debt over time if you are unable to pay it immediately. Unfortunately, penalties and interest may accrue, and a fee may be attached with setting up the agreement. These added costs can often be avoided when a tax bill is paid in full.
Four Steps to Take Before Applying for an Installment Plan
If you have carefully considered your options and still want to proceed with applying for an installment agreement, consider taking the following important steps before moving forward:
- File all of the tax returns that are required of you.
- Understand that any future tax refunds will be applied to the tax debt that you owe the IRS until the debt is paid in full.
- Before entering into the installment agreement, consider whether you have other sources of funds available to pay the tax debt. Doing so may save you money in the long run. Examples of other sources may include personal loans or credit cards.
- Carefully determine what the largest monthly payment that you can make is.
Even if you decide that you do want to pursue an installment agreement, it is important to note that not everyone qualifies. Fortunately, there are other options available for paying tax debt aside from an installment agreement.
We hope that you found this information helpful as you consider your options for paying an outstanding IRS tax debt. If so, we encourage you to share it with your friends and family on Facebook. More people face tax related issues than you might think.