IRS Repayment Plans may not always be the best route for a taxpayer struggling with back taxes to take. Many taxpayers forget about clearing their back tax debt by paying in full, while others do not have the option. Let's take a look at the differences between paying in full and IRS repayment plans.
Paying in Full
Most taxpayers are absolutely not able to pay their entire IRS debt in one installment. However, if you are fortunate enough to borrow from loved ones or your financial institution, you can save plenty of money in penalties and interest by paying the debt all at once rather than relying on IRS repayment plans. Let's look at the consequences of paying your tax debt by way of credit cards or bank loan.
If the interest rate on yourcredit card is lower than the interest charged by IRS repayment plans, you may find using a credit card to pay the debt is beneficial for you. It is easier to manage an IRS repayment plan with your creditors than with the IRS. Unlike the IRS, your credit card companies are not likely to issue a tax lien or levy your property if you fall behind on payments or are late making a payment one month.
IRS repayment plans charge a one-time set up fee of $105 plus the daily compounded interest rate of four percent of your total tax debt added monthly. The IRS will charge a convenience fee when you use your credit card to pay your tax debt of 2.49 percent of your total debt, which may be a lot if you have more than $10,000 in tax debt.
Take note that if at any time you go bankrupt because of credit card debt, you will not be allowed to include the IRS debt charges in the bankruptcy.
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Your financial institution usually has a lower interest rate than IRS repayment plans and with fewer restrictions on repayment time schedules. Taking out a personal loan may be the best idea if you can get approved. However, many people are not able to take out large personal loans, so they borrow against their homes.
A home equity loan can be a great option because it could give you the lump sum you need to settle your IRS debt. But many homeowners have lost value in their property in recent years, or may already have a tax lien against their home, so taking out a loan may not be an option.
Besides, taking out a home loan can be risky because the bank has the power to take your home if you get behind on your payments, just like IRS repayment plans allow the IRS to seize your property and assets if you miss a payment.
IRS Repayment Plans
In the end, many taxpayers have no choice but to research the many IRS repayment plans the IRS offers and choose one that makes the most sense for their tax debt situation. For the few that have the means to pay in full, it is always best to do so quickly.
The IRS strongly recommends taxpayers contact a back tax expert to review all your options before deciding to pay in full or to check out IRS repayment plans. A tax debt specialist can go in full detail of the pros and cons of each option.
Call now or fill out the form below for a free consultation about IRS repayment plans. We'll only connect you with a tax debt relief company holding at least a B rating with the Better Business Bureau.