When you receive a letter from the IRS or a debt collection agency advising you that your debts have been sent to collection, you’ll likely want to know what to do. Luckily, there are a few steps you can take to avoid being hit with debts you can’t pay.
Installment agreement
If you are unable to pay your taxes and are struggling to meet monthly payments, you may consider filing for an installment agreement with the IRS. An installment agreement allows you to pay back your debt in smaller, more affordable payments over time. However, it is important to remember that a default on an installment agreement may lead to your being liable for fines and other penalties.
There are several types of installment agreements available with the IRS. The best one for your situation will depend on the amount you owe and your financial status. You can apply for a payment plan online or by mail. It is important to ensure that you can meet the requirements of the payment plan before signing up.
The IRS is generally prohibited from levying your bank account while you have an installment agreement in place. This means that it cannot force you to sell your property until the tax debt is paid.
Loan
If you have an emergency fund or a bank account that you can draw from if the unthinkable happens, you may have the requisite cushion to borrow against. In the event that you do need a hand, the IRS has you covered. You can pay your taxes based on your wages, or you can apply for a loan. As with any loan, be sure to do your homework before taking out a large amount of cash.
The IRS offers a number of payment alternatives ranging from the simplest such as a check to the most complex such as direct debit. One of the more modern options is a streamlined payment system that will allow you to pay by using a credit card or debit card. Some lenders even offer same day loans.
Credit card
If you’re expecting to owe taxes this year, you might be wondering if it makes sense to pay with a credit card. Although it may be tempting, you should be careful when using this option. This is because your credit utilization rate and your credit score will be affected.
Generally, credit cards charge more interest than other loans. They also come with a convenience fee. These fees can add up quickly if you have a large balance on your account. A simple solution is to pay the bill in full.
If you don’t have the cash on hand to pay your tax bill, you should look into a payment plan with the IRS. They offer plans for up to six years that are much cheaper than credit card payments. However, you will still have to pay monthly fees plus interest.
Make partial payments
If you are struggling to pay your taxes, then you should consider making partial payments. The IRS will review your finances on a case by case basis to determine if you qualify for this type of payment arrangement. It’s a good idea to discuss your situation with a tax consultant or revenue officer before you decide.
Partial payments are important because they can help you to reduce the amount of interest you will have to pay later. However, they can also negatively affect your credit score. In addition, creditors may refuse to accept your payments, which can result in late fees and account default.
To request a partial payment installment agreement with the IRS, you will need to complete Form 9465. You will also need to attach three months of backup documentation.
Suspend collection actions
Fortunately, there are many options available to help you get your taxes paid. One is a suspension of collection. It’s a bit of a stretch, but the IRS does have legal authority to suspend their collection activities during certain times.
The best way to determine whether or not the IRS will suspend your collection is to call them. They will then send you a statement of what’s owed and what’s owing. If the IRS feels that you’re not going to pay, they may take other steps, such as placing a lien on your property or garnishing your wages.
As with any type of payment, you’ll have to put together a plan to get the job done. This includes making arrangements to pay any penalties or interest you may owe.