The IRS sets interest rates on a quarterly basis. For the fourth quarter of 2018, the rate charged for tax underpayments is 5%. These rates have been as low as 3% in recent years.
One important thing to know about IRS interest charges is that they can almost never be abated. Penalty abatement is available for first-timers and taxpayers with a reasonable cause for late payment, but interest abatement is not.
When you owe the IRS money, it’s important to realize how much your tax debt is costing each month in the form of interest and penalties.
If you owe the IRS money, you’ll be charged interest right away. You’ll also face the late payment penalty, which is calculated at 0.5% of the unpaid taxes each month. So—at the current IRS interest rates—you are paying 5.5% per month just in penalties and interest.
If you fail to file a tax return, you could also face the failure to file penalty. This penalty is 5% of the unpaid taxes per month. If you owe both the failure to file and failure to pay penalties, the maximum combined amount is 5% per month.
When you enter into an IRS installment agreement, the late payment penalty and interest continue to accrue. The longer your repayment period is, the more you’ll end up paying overall because of these penalties and interest.
If you can get the money to pay off your tax debt from other sources, you should weigh those options against the cost of an IRS installment agreement. In addition to paying penalties and interest, you may have to pay setup fees.
If you can borrow the money from friends or family, this may be the lowest cost option. You can also consider selling assets, refinancing your home, getting a home equity loan, or seeking other types of loans to pay off your tax debt.
Compare the cost of each of these options to the cost of an IRS payment plan. Even if you can only borrow a portion of the money you need to pay your full tax balance, it could make it easier for you to make monthly installment agreement payments and get rid of your tax debt faster.
Consider all of your options and talk to a tax attorney to develop a plan to eliminate your tax problems.
Contact The Gartzman Law Firm to speak with an Atlanta tax attorney about your case. Request your consultation by calling (770) 939-7710.