Due to financial constraints, many individuals are unable to pay their entire tax debt all at once. Even though paying in a lump sum is the simplest way of resolving a tax debt, you may need to square away your tax debt in fixed monthly installments over a longer period of time.
There are various types of installment agreements you may qualify for, which are partially determined on the amount of tax debt owed. When applying for an installment agreement, one of the most important things to keep in mind is the amount that you will need to pay every month. Also, you’ll want to consider how long your payments will run before your balance is satisfied. You’ll definitely want to make sure you can afford to the payments you agree to. If you default on an agreement, the IRS will terminate it and begin collection actions. In order to get a defaulted agreement reinstated, the IRS requires an explanation for the non-compliance.
Until your tax debt is completely paid off, the IRS will keep charging penalties and interest. Even though you’ll end up paying more in the end because of these charges, you do have the benefit of paying small amounts over a longer period of time.
Resolving back taxes through an Installment Agreement may be in your best interest, as it allows you to pay off your liability without endangering your financial stability.