Installment agreements are one of those things that should be simple. They should be as easy as one, two, done, but somehow they’re not. Installment agreements, also known as payment plans, are perfectly straight-forward in concept: when you need to pay back the IRS, you can set up a monthly payment to eventually clear your accrued debt. Similar to student loans, credit card debt, or a mortgage, payment plans are not a foreign concept.
So why on earth would I say that they’re not simple? That’s the million dollar question!
Well, it’s a pretty easy answer: the IRS is complex. The United States tax code is one of the most complicated things in the entirety of history, so you can be sure that it makes a lot of simple things very complex. Payments plans are not immune to this “intensifying,” so being very aware of the pitfalls along the way is the best course of action to emerge unscathed.
It’s got to be in the budget
One of the biggest mistakes someone can make with the IRS is to enter into a payment plan where default is a very real possibility. The second that you are unable to make a payment, things are going to start going downhill fast. One thing I tell all of my clients who are entering into installment agreements is that they have to be 100% positive that they aren’t going to default on any of their monthly payments. For many loans, if you’re late for a payment, it’s not going to be the end of the world. You can usually make up for it and no one will bat an eye. But when it comes to the IRS, making sure that you are always on time is a necessity. I simply cannot stress this enough.
I don’t want to scare anyone, that’s not my intention. But I do want to make it clear how important it is to only enter into an agreement where you can make the monthly payments. It’s going to save you from so much stress in the long run.
The IRS won’t hesitate to reject an installment agreement that they don’t think is in their best interest. You have to always remember that they are going to do everything they can to get the most money out of you. It’s nothing personal against you, but the IRS operates around money. That means that their goal is always going to be getting back everything they can. Knowing their focus is great for us though. Seeing as we know what they want, we can draft the terms for installment agreements to allow you to safely make your monthly payments while simultaneously satisfying the IRS.
So, how do I get my payment plan approved?
I love this question. Much like an offer in compromise, the solution is simple – be reasonable. The IRS is not going to let you walk away scot-free, so try and get rid of that mentality as soon as you can. Instead, you want to focus on convincing them that the amount you’re offering is reasonable under the particulars of your specific situation. If you can prove that your expenses are more significant than they might seem on the surface, you’re in a good place.
When you hear someone makes $500,000 a year, it might seem like a lot. But someone making that kind of money in New York City is going to have a much harder time staying in the green than someone living in Topeka, Kansas. Add in factors like private school fees, family expenses, property taxes, etc., and you might find that you’re only coming out $30,000 ahead each year. If the IRS is expecting you to pay back $4,000 a month (totaling $48,000 a year), it’s not going to happen. What you have to make sure of is that you’re showing them the whole picture. I like to tell my clients that we’re telling the IRS a story and showing them how the $2,000 a month we’re offering is actually in their best interest. If you default and can’t pay them anything due to being strapped for funds, then they’re going to be losing out. Convince them that your offer is reasonable and you’re halfway there.
While getting your payment plan approved is half the battle, the second half is just as important. Once you’re in a reasonable installment agreement, you have to make sure to stay steady. Much like a runner taking part in a marathon, you need to keep strong for the whole race. If you sprint out the gate but don’t conserve your energy, you’re going to falter down the line.
Stay on top of your payments, do what you can to keep your expenses in check, and if you are afraid you might default, contact a professional immediately. A single default gives the IRS all the ammo they need to take everything they can from you. Once you’re in their good graces, you have to stay the course.
Stay the course
Hopefully you now have an understanding of what IRS installment agreements look like. They’re not so different than the kind you’re undoubtedly familiar with, but the stakes are a lot higher. Keep calm and make sure that the plan you’re entering into isn’t going to put you over the edge.
As always, if you’re feeling overwhelmed and want to make sure that your agreement isn’t going to come back to bite you, don’t hesitate to ask for help. Helping people submit reasonable offers that they can afford is what we do on a daily basis. There are a number of tips for making your experience as smooth as possible. We want to make sure that you’re entering into a plan that not only best suits your needs, but also sets you on a path to a fantastic future.