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This chapter explains how installment agreements and estimated payments function. There is also a special section for those of you who can pay your taxes in full.

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Chapter 15:
The Paying Game

It hurts, it hurts a lot. I understand your pain. Still, you will feel altogether better when the whole thing is over. I know. I have seen it happen hundreds of times. You can’t move on with your life until you pay the tax man, you don’t want to and you know you have to. Just how do you give your pound of flesh and not bleed to death? There are ways, believe me. In this chapter, I will discuss two options: paying in full and installment agreements.

PAYING IN FULL

You might owe far less than you previously imagined and find you are actually able to pay off your entire liability right away. If you can pay in full right away, beautiful, go ahead and do it. And remember that you have about five months after the first IRS bill or assessment to pay off a tax debt before it goes into collections. There is no law that says you have to have an official installment agreement to delay paying. Even though you will receive letters from the IRS insisting that you must pay them within ten days or else you must contact them, you can disregard these for five months and pay what you can, if anything, each month. (Remember: This tactic only applies to current federal tax law and the IRS and does it not apply to state tax collections!!) Also, you can stagger your tax filings by mailing them in a month or more apart, paying them off as you go along. Of course, you will accrue interest and penalties this way, but that cannot be avoided unless you pay the IRS in full right away.

Here is another strategy. Let’s say you owe $7,500 for your back taxes. You just received a reduced interest check from your credit card company. In other words, you can write a check that will be charged to your credit card and the credit card company will charge a smaller interest rate, say 5.9% or even less, than the IRS. This is a good deal. This way you can use your credit card without being charged a “convenience fee” by the IRS or state taxing agency. (However, many of these promotional deals charge 3% of the amount of the check up front in addition to the 5.9% over time. You need to read the fine print as the credit card companies hide this fee as best they can. In effect you would still end up paying someone a 3% fee for “charging” your tax debt to your credit card. Even so, it is usually a cheaper way to go.)

What if you don’t have enough credit available on your charge card to cover your tax liability? You can pay the IRS with a “credit card” check for the amount of credit you have available and pay the remaining balance due to the IRS in cash over the next five months. Although it is an option, I don’t recommend using a credit card outright to pay off the tax man. The credit card company usually charges a higher interest rate than the IRS, there is a “convenience fee” charged by the IRS for you to use a card and you cannot declare bankruptcy on this credit card debt.