1.) Agreeing to Pay More Than They Can Afford

This is a mistake, as tax pros, that we see often. I am not sure if it’s people’s natural fear of the IRS or maybe they’re overeager to pay off their tax debt but for whatever reason, when setting up their installment agreements, people tend to agree to pay way more (per month) than they can afford.  As someone who deals with the IRS on a daily basis, I can tell you that if you are afraid of the IRS and think that you need to agree to pay more or otherwise they may hound you, you need to take that fear and that belief and throw it in the garbage where it belongs.  At the end of the day, when you are dealing with the IRS, you are really just dealing with other humans.  They aren’t robots without feelings.  They are not out to get you.  And they understand that people make mistakes.  They want to help (as long as you haven’t done anything illegal of course).  And if you go to them and explain “yes, I know I made a mistake but I would like to rectify that,” they will do everything in their power to help you.  That includes setting up a payment plan that works for you.  So before you make that call, sit down and take a look at your monthly expenses and income and really do the math and think about a reasonable amount you can afford to pay them each month and still afford to get by.  If you can’t afford to pay them anything, then you probably qualify for Currently Not Collectible (CNC) status and you should look into that instead of an installment agreement.  At the end of the day, the IRS will just be happy that you have taken steps to remedy the situation – however much you decide to pay each month.

2.)  Misunderstanding Which Date Qualifies As The Actual Payment Date

Your payment for your installment agreement is just like anything else – it is due on or before a certain date each month. And one thing people often make the mistake of is assuming that the postmark date on the mailed-in check or money order they sent in is the determined date for when their payment was submitted.  Not so.  The IRS uses the received date as the actual date, not the postmarked date.  So we always like to advise those taxpayers who mail in their payment to do so at least 10 days before it’s due date in order to give adequate time for it to be received, processed, and recorded by the IRS as paid.  Of course, the best way to avoid all this is to choose the direct debit option.  That  way you don’t even have to worry about making any payments.  The IRS just pulls the monies from your checking account each month when it is due automatically.  All you need to worry about is making sure the money is there.

3.)  Failing to Stay Compliant

In order to stay on your agreed-upon installment agreement and out of collections, you must stay compliant. Not just with your payment plan but with all subsequent tax return filings.  They must be timely made (including extensions).  Your W-2 withholdings must be adequate for the current tax year, and if you are self-employed, estimated taxes must be remitted.  If you can afford to do so, hire an accountant that can handle all of this for you.  It will force you to stay more organized and will ensure that fewer (if any) mistakes are made.  Whenever you can delegate responsibilities that are not in your wheelhouse, and you have the means to do so, it is always best to do so.  After all, you wouldn’t re-roof your own house would you? No.  You’d hire a licensed contractor to do that for you.

Have a tax question? Contact Venar Ayar.