Are You a Legal Professional?

Paying Taxes

Obviously, paying your taxes plays a large role in avoiding tax problems. However, making tax payments isn't always as simple as writing a check. In addition to basics on how to pay your taxes, below, you'll find resources on getting an extension of time to pay and working out an installment agreement with the IRS if you cannot pay all that you owe at one time.

How to Pay Your Taxes

There are more ways to pay your taxes now than ever before. You can address your tax liability by filing and paying electronically or by sending a check or money order made out to "United States Treasury." You can pay in full or seek a repayment plan, sending payment in whatever amount you are able and can agree upon with the Internal Revenue Service (IRS.)

In some circumstances it can be advisable to pay your tax liability in full by taking a loan, such as a home equity loan from a financial institute or by paying with a credit card. This may be wise since unpaid taxes are subject to interest that is compounded daily, as well as incurring a monthly late payment penalty. This means paying in full can minimize the amount of interest and penalties that accrue and reduce the overall expense. Interest rates charged by banks are usually lower than the combination of interest and penalties charged by the IRS.

Where an installment agreement is necessary you can choose to make installment payments by direct debit from your bank account, by payroll deduction from your employer, or by a regular installment agreement. Payment amounts are based on your ability to pay and should be an amount that can be maintained over the lifetime of the installment agreement.

Penalties and Interest

When a taxpayer owes money to the IRS and cannot pay immediately there are significant penalties and interest that apply to the amounts owed. The interest rate owed on unpaid taxes varies from 4-9% generally, which may be lower than some bank interest rates, but the penalty for filing taxes late is generally 5% per month up to 25% of the total tax liability. Late payments incur a penalty of 1/2 of 1% per month, up to 25% of the unpaid amount due.

There are some exceptions to these penalties and if the taxpayer can demonstrate that one of several conditions exists the IRS may waive some or all of the penalties. Exceptions may be made where a serious illness, death in the family, or loss of records due to a natural disaster frustrate a taxpayer's ability to pay in a timely fashion.

Appealing an IRS Action

The IRS has an appeals system for taxpayers who don't agree with the results of their tax return or other adjustments made to their tax liability. If you have dealt with an IRS employee and disagree with their findings you can request a meeting with their supervisor. If this meeting does not produce a satisfactory agreement or if the examination was conducted through correspondence you may then request a conference with an appeals officer.

Appeals conferences are informal meetings. You may represent yourself or seek the assistance of an attorney, a certified public accountant, or an individual enrolled to practice before the IRS. If you don't reach an agreement with the appeals officer some actions can be appealed in the courts.

Learn About Paying Taxes