If you owe money to the IRS,it can be a highly stressful experience,especially if you can not get hold of the cash easily. Firstly it is vital to record the amount of tax you have outstanding,with every tax agency and for every tax year. Doing this will provide a helpful overview of your current circumstances,and will allow you to monitor what happens going forward. Make sure that you still get your tax return filed. Here’s what to do when you owe the IRS backtaxes:
Arrange to pay in Installments
Installment contracts,or payment plans,enable taxpayers to settle their debts in more convenient,smaller payments. Typically,such payments are identical every month for an allocated time period,which will repay the debt fully. The benefit of this arrangement is that you can pay smaller amounts towards the total debt. Also,the IRS usually can not take further collection measures against you,apart from offsetting refunds in future against the outstanding balance. The drawback is that interest and penalties will continue to accumulate on the money you owe. Consequently,you debt will be repaid slower than you might expect.
Ask for a Temporary Extension to Repay the Entire Balance
The IRS can offer taxpayers up to an extra four months to repay their tax debts. There is no charge to apply for this extension. You will have to pay an extra 0.5 percent penalty each month on your outstanding balance though.
This is a handy option for people who require a little bit longer to obtain the money they owe. The IRS charges interest at the federal short term rate,plus three percent (this amount can change every three months). Temporary extensions allow you to avoid the application fees for installment payments,but not interest fees or penalties for late payment,according to good [dcl=6975].