Most Americans file their taxes and get a refund from the IRS each spring, but what happens if you end up owing?
As overwhelming as it may be to end up owing on your taxes, don’t panic. There are options for you. Before you begin exploring those options, be sure to file your taxes to avoid incurring further costs from a failure-to-file penalty.
Second, explore other payment sources, such as family loans, credit cards, or retirement withdrawals. If these options are not feasible or are too expensive, consider an installment agreement with the IRS.
If you owe $50,000 or less, you may qualify for a streamlined installment agreement where you can make monthly payments for up to six years. An installment plan will only halve the late penalty, not remove it. Interest will also be charged at the current rate, along with a small user fee to set up the payment plan.
In order to get and keep the installment plan, you will have to agree to keep all future years’ tax obligations current. The payments will be set up as an automatic draft out of your bank account and must be made each month.
If you do not make your payments on time or have an outstanding past due amount in a future year, you will be in default of the agreement and the IRS has the option of taking enforcement actions to collect the entire amount owed.
If you will be seeking an installment agreement exceeding $50,000, you will need to validate your financial condition and the need for an installment agreement by providing the IRS with a Collection Information Statement (financial statements). You may also pay down the balance due to $50,000 or less to take advantage of the streamlined option.
- be sure to file your return, even if you cannot pay the full balance to avoid a failure-to-file penalty
- consider a payment arrangement that is in your best interest to lower the cost of financing
- and work with an accountant who specializes in keeping your records up-to-date and maximizing your business’ cash flow to avoid surprises.