Both individuals and small business owners get into situations when they can't pay their tax debt all at once. Fortunately, the Internal Revenue Service (IRS) is willing to set up payment arrangements for cash-strapped taxpayers. Business owners have a few additional criteria that must be met, including:
It is important to consider all of your options for paying your outstanding tax bill before entering into a payment arrangement with the IRS. You still accrue interest of eight to 10 percent per year and must pay all penalties associated with the tax debt.
Fresh Start, a tax relief program that was instituted in 2011, increased the threshold from $25,000 in unpaid taxes to $50,000 to qualify for a payment plan. Individual and business taxpayers who meet this threshold do not have to provide financial information in order to qualify. The plan also changed the time required to pay from 60 months to 72 months. You can't be delinquent on your current year's taxes and still apply for a payment plan for previous years.
Small business owners who owe more than $50,000 and require more than six years to pay it must complete Form 433-A entitled Collection Information Statement. An IRS agent must approve payment plans for delinquent taxes at this threshold. While the final monthly payment amount is at the discretion of the IRS, there are three ways you can influence the decision:
It may take several months for the IRS to notify you in writing that your payment plan has been approved.
It is easy to forget to mail in a payment each month with all that you have to as a business owner. You can avoid this problem by having your monthly tax payment debited directly from your business checking account on the same date each month. You just want to be certain to record the transaction in advance to ensure you have the funds to cover it.
Both you and the IRS are legally bound by the payment arrangement once it has been approved. However, the arrangement does have a clause guaranteeing cancellation in the following circumstances:
As of 2013, the IRS charges the following fees to set up a payment plan on your behalf: