Preparing to file your tax return can be a stressful process, especially if you are not working with a professional accountant or tax expert. Doing it yourself can add a lot of pressure. However, what’s worse than the stress that comes with preparing your files and forms is finding out that you owe the IRS some money.
However, keep in mind that owing the IRS money does not mean that you have a free pass to delay filing your tax returns. You still need to file your tax return on time to reduce penalties and interest.
There are many ways to pay your taxes to the IRS. Here are some that you may want to consider:
IRS Direct pay is free and secure. This method will allow you to pay tax bills and estimated tax payments directly from your bank account. You will receive an instant confirmation from the IRS once you submit your payment through IRS Direct Pay.
Electronic Federal Tax Payment System or EFTPS allows both individual and business taxpayers to pay taxes online or by phone for free. To use this method, you need to go to the EFTPS website and enroll.
If you are using tax preparation software or working with a tax professional, then this integrated e-pay option is for you. You can submit one or more debit payment requests from your designated bank account.
IRS is also giving you the option to do a same-day wire transfer from your financial institution. All you need to do is to get in touch with your bank or your financial institution to inquire about availability, cost and cut-off times.
You have the option to use your debit or credit card to pay your taxes. You just need to keep in mind that the IRS uses payment processors such as standard service providers and business/commercial card networks. But rest assured that this method is safe and secured.
Tax season is already stressful as it is, finding out that you owe the IRS is the last thing you want while preparing your tax return. It can also add to your stress if you do not have cash available to make a lump-sum payment.
Before getting into the options, you need to determine how quickly you can pay off your tax debt. Keep in mind that the sooner you can pay, the better. Why? Because your late-payment penalties and interest will pile up till the date you can pay in full.
Fret not, it will not be the first time that the IRS has to deal with this type of dilemma. The IRS offers a few options that you can choose from on top of grace periods.
If paying in one lump sum is not an option for you right now, the IRS will let you pay the debt over a specific amount of time. But again, your penalties and interest will keep on piling up until your entire balance is paid.
Here are the payment alternatives if you cannot pay what you owe the IRS in full:
Short-Term Payment Plan
Instead of paying your tax debt in one lump sum, you can ask for a short-term payment plan. This option gets you up to 120 days. But make sure to finish your payments to make sure that you do not incur more penalties and interests.
Long-Term Payment Plan
If 120 days is not enough for you to get the cash you need to pay your debt in full, you can ask for a longer-term monthly payment plan or installment agreement.
Unlike the short-term payment plan, the long-term payment plan has a $149 user fee that applies to both monthly payment plans or installment agreements.
If you personally owe more than $50,000 or if you are running a business that owes more than $25,000– the IRS will require you to submit a financial statement with your request for a payment plan.
This option involves an agreement between you and the IRS that states that you may settle your tax debt for less than the full amount you actually owe.
This option is not available to all. You need to use the Offer in Compromise Pre-Qualifier to determine if you are qualified for an offer in compromise.
If you still can’t find an option that works for you, then you may want to request for temporary suspension of collection. You can do this by getting in touch with the IRS.
Even if preparing to file your tax return feels like an apocalypse and owing the IRS money feels like the end of the world– keep in mind that these are not the worst-case scenarios.
The worst thing you can do during this situation is to delay filing your tax return and doing nothing about your tax debt.
The worst thing you can do is to do nothing if you owe the IRS money. The agency typically welcomes all overtures to get tax debts paid, and it might even accept less than what you owe if your financial situation qualifies.