.
Avoidance of immediate financial strain. It may be the case that you simply can’t afford to pay the entirety of your debt right now. You can spread your debt out into chewable portions as long as your debt is paid off in 72 months.
Protection from harmful legal action. Once an IRS payment plan is in place, the IRS generally halts collection actions like wage garnishments.
Protection for your credit score. Although unpaid taxes don’t affect your credit score, if you do resort to paying off your debt with a loan or a credit card, that could result in harm to your credit. A payment plan gives you an option that might be a bit less risky on that front.
Of course, an IRS payment plan isn’t always the best option. There are a few drawbacks to be aware of, and it is important to know that you may even end up paying more by setting up a payment plan than by paying all you owe up front. Here are three things to consider…
Interest and penalties keep ticking while you pay. The IRS charges 3 percent interest annually, plus additional monthly penalties that can add up quickly.
It is a long-term financial commitment. A typical agreement lasts around five years. That means fitting those monthly payments into your budget for the long haul. Depending on the size of your debt and your budget, that could be pretty suffocating.
There is risk of defaulting. If you miss payments, the IRS can restart collection actions. If something comes up and you’re unable to pay your monthly fee, there’s a chance you’ll end up right back where you started, facing wage garnishments and penalties.
So, if, after weighing these factors, you do decide to set up an IRS payment plan, you can submit an application to the IRS (making sure to gather the necessary documents).
But, if it’s not right for you, there are some alternatives to setting up an IRS payment plan. You could pay the debt off with a credit card, take out a personal loan, or borrow against your home equity. But… there are some definite negatives to all of those options. I don’t generally recommend these courses of action because it’s paying debt with debt. But, there is a place for them in some select situations. Do your research before choosing one of these alternatives.
Yes, an IRS payment plan can be a helpful option when you’re struggling financially. Take some time to think through the pros and cons of going that route. And if you don’t want to do that alone, I’m here for you. I’ve helped plenty of my Columbia, SC clients set up installment agreements with the IRS, and I can do the same for you.
If you need the peace of mind that comes from talking it through with someone who’s looking out for you, grab a time on my calendar:
Don’t let your tax debt hang over your head. Make a plan to take care of it so you can sleep easier this summer.
Here with options,
Akuathayre Snell