What is an Installment Agreement?
If you can’t afford to pay what you owe to the IRS in full or in less than 120 days, the IRS allows you to break down that debt into monthly installments so that it is easier to pay down. An installment agreement allows you to pay down your tax debt while avoiding wage garnishment, levies and collections.
There are many different types of agreements all of which have their own benefits. If you have found yourself at the end of the tax period owing more money than you can afford to pay off in one lump sum amount, sometimes the best course of action is to look into an installment payment scheme with the IRS. Your account will still accrue penalties and interest because you’re essentially making late payments but, it is often better than ignoring the debt completely and the IRS is usually happy to allow you to do an installment plan in order to pay off what you owe them. This article briefly goes over the different types of agreements and their requirements.
How Does the IRS Decide How Much my Monthly Payment Will Be?
The IRS gives you the option to decide how much your minimum monthly payment will be based on what you can afford however they will encourage you to pay as much as possible to avoid additional penalties and fees. If you offer too low of an amount or you don’t tell the IRS what you’d like your minimum payment will be, the IRS will divide what you owe into 72 months.
Guaranteed IRS Installment Agreement
If you meet certain IRS criteria, you or your business may be guaranteed eligibility for an installment plan. The best part of a Guaranteed Installment Agreement is that the IRS does not require you to complete a financial statement or verification.
You may be eligible for a guaranteed installment agreement if:
Streamlined Installment Agreement
A Streamlined Installment Agreement is best for you if you owe $50,000 in tax debt or less and do not qualify for a Guaranteed Installment Agreement. This type of plan typically does not require you to complete financial statements and verification.
You may be eligible for a Streamlined Installment Agreement if:
In- Business Trust Fund Installment Agreement
This installment is best for a small business that owes $25,000 or less in tax fees. You must be able to pay off this installment plan within two years. This type of agreement does not typically require you to submit financial verification and statements.
There are many types of installment agreements and all of them come with fees and criteria native to the specific type of agreement. It is best to seek the help of a tax professional to decide which agreement is best fit for your financial situation and to better understand the fees and requirements necessary to apply. Give us a call today to see which agreement is best for you and your business.
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