If you owe taxes but cannot pay them off at once, you may be able to enter into an agreement with the IRS on how you will clear your arrears. Your payment plan can either be short-term or long-term. As long as you stay compliant as agreed, the IRS will not take action to recover the taxes owed.
A payment plan provides an opportunity to clear your back taxes, as a business or as an individual, and avoid trouble with the IRS. However, it is necessary to understand how these payment plans work before committing to one. It will help you make the best decision based on your current financial situation.
What you need to know
You have to request a payment plan from the IRS to set one up. Before arriving at an installment agreement, your information will be collected alongside the amount you intend to pay every month based on your ability to pay and your financial circumstances.
When negotiating a monthly payment with the IRS, you should propose an amount you are comfortable paying. Will you afford to make your periodic payments without financial hardship? If not, do not promise to offer more just to get your payment plan approved.
Failure to meet your monthly payments can be a costly mistake. The IRS might also revoke your payment plan if you fail to deliver as agreed. Remember, any interests and penalties continue to add up until the outstanding arrears are settled.
You can modify your payment plan
If your finances have drastically changed or you can’t make the payments under your plan, you can also make a request to the IRS to modify the terms of your agreement. Understanding such nuances of your payment plan will help you make the most out of this option of clearing your old tax debts.