How to Handle Your Tax Bill

Having just passed the tax filing deadline, many taxpayers are faced with a tax debt that they are unable to pay. Tax amounts owed for 2018 are due and payable on April 15th even for those taxpayers who have applied for a six-month extension. The extension applies only to the filing of the tax return and does not affect the payment of the tax amount due. In fact, this amount will accrue interest at an annual rate equal to the federal short term interest rate plus 3% from the date of the filing deadline until the tax balance is paid in full. This being the case, it is important for taxpayers to face back tax balances head on and explore all available methods to resolve them in order to avoid the negative consequences of compounding interest charges.

The following are some of the options available for handling an outstanding tax balance:

1)      Pay the full amount of the tax balance due.

Perhaps the easiest way to resolve a back tax balance is to explore the options available for paying the full tax amount owed. These options include, among other things, taking out an ordinary bank loan or an equity loan, withdrawing funds from a retirement account, putting the balance owed on a credit card, or refinancing a home. The negative aspect of each of these methods is that they involve paying interest on the amount borrowed. They will, however, satisfy the IRS requirement for paying taxes owed and will therefore avoid the possible initiation of aggressive collection activities.

 

2)     Request a short term extension.

In the case where a taxpayer expects to have the necessary funds to pay a tax balance in full within 120 days from the date those taxes are due, they can request short term administration extension. Such extensions are granted almost automatically and, while interest will continue to accrue on the tax balance owed during the period of the extension, the IRS will not initiate any collection activities during this time.

 

3)     Pursue one of the IRS tax settlement options.

One such tax settlement option is the IRS Installment Agreement which is a tax resolution plan that allows for payment of an outstanding tax balance over a period of time rather than all at once. Approval for this settlement plan is almost automatic if the tax balance is less than $10,000 and the taxpayer is in good standing with the IRS. The length of the repayment period and the amount of the payment are usually based on the taxpayer’s financial status and the balance of taxes owed.  A second tax settlement option, called the Partial Payment Installment Agreement, is available for taxpayers who can submit documentation that they are unable to pay the full amount of their back tax balance. As with the full-payment Installment Agreement, the Partial Payment Installment Agreement is based on the taxpayer’s financial situation and the total amount of taxes owed. Another tax resolution alternative is the Offer in Compromise which, like the Partial Payment Installment Agreement, settles an outstanding tax balance for less than the full amount owed. This option is only granted to taxpayers who meet very specific acceptance criteria and who are very unlikely to be able to pay the full balanced of their tax debt within a reasonable period of time.

If you have a tax balance that you are unable to pay, the licensed accountants and at Las Vegas Bookkeeping can help your determine the best course of action for resolving it. Contact us by phone at (702) 945-2757 or by email at tina@lasvegasbookkeeping.com to receive a free, no obligation consultation. Back tax balances accrue interest which only increases the tax balance that is already owed. So, don’t wait! Contact the licensed professionals at Las Vegas Bookkeeping to get the tax resolution process underway!