How to deal with steep tax bills 

The following are tips for those taxpayers who cannot immediately pay the full outstanding tax liability they owe.

Credit Cards and Loans

For those taxpayers who choose to pay their tax liability by credit card instead of cash, they can contact the IRS at (800) 272-9829 to arrange payment. This is the quickest method and can be paid off during the regular credit card billing cycle. To avoid high interest rates on credit cards, some individuals consider financing the full payment of their liabilities through loans, such as a home equity loan from a financial institution. It is best to pay the tax liability in full as soon as possible; the interest rate a bank charges is usually lower than the combination of interest and penalties imposed by the IRS for installment payments.

Paying In Installments

If taxpayers cannot pay in full directly or through the use of loans or credit cards, the IRS offers three installment payment options: Direct debit from your bank account, payroll deduction from your employer, or routine payment installments.

Direct debit or payroll deduction installment agreements provide taxpayers with the opportunity to make timely payments automatically and therefore reduce the possibility of defaulting. For direct debit installment agreements, individuals will need to submit Form 9465, Installment Agreement Request, and include a voided check.

To initiate a payroll deduction installment agreement, taxpayers need to submit IRS Form 2159, which also needs to be completed by their employer. To request routine payment installments, taxpayers can submit Form 9465 and should specify the amount they can pay and the day they wish to make the payment each month. Expect to pay a one-time fee, penalties and interest.

Calling for Assistance

For those taxpayers who are still unable to make any payment, they can call the IRS at (800) 829-1040 to receive assistance. If the IRS determines that they cannot pay any of their tax debt, collection may be delayed until their financial condition improves. Be prepared to provide pertinent financial information during the call, such as current pay stubs, rental agreements or mortgage statements, and car lease/loan statements.

Jack Nuckolls is a senior tax director in the Bay Area practice of BDO Seidman, LLP.

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