If you believe you might not be able to pay taxes in full or on time, you could have several options available. One of them might be working through a payment plan.
There are several potential complications with this approach. Although it is typically less complex than navigating a dispute with the IRS, it might still take some work to incorporate an installment schedule into your overall strategy.
Potential additional fees and charges
The first complication you might encounter would be demands for you to pay extra money. This would typically fall into one of two categories.
The first category represents charges that come from the payment plan. A common example is the setup fee. The IRS charges this user fee to cover the costs of the installment-plan program.
The second category represents tangentially related fees, such as interest and penalties. For example, there are various types of penalties for various errors and omissions:
- Failure to file or pay on time
- Submitting inaccurate information
- Erroneous refund claims
These fees might increase the amount you owe to the IRS, sometimes by a significant percentage. Accounting for them and minimizing them is likely to be an important part of reducing your financial burden.
Managing a payment plan
After you set up a payment plan, it is likely that you will manage it online. The IRS has an online portal through which you can view various aspects of your account.
Keeping up with payments will probably also be an important part of your success. With all of these factors to consider, it is typically wise to prepare thoroughly before committing to any type of agreement with the IRS.