Posted by Jim McClaflin, EA, NTPI Fellow

How to Defer Tax Payments: 4 Methods to Make this Happen

How to Defer Tax Payments: 4 Methods to Make this Happen


Uncle Sam allows small businesses to defer tax payment in a series of ways. Here are four methods to make this happen:

  1. Apply for a Payment Plan (Short Term)

You can defer your tax payment through the short term payment plan in which you will pay such tax within a couple of months. With this option, you can avoid collection notice from Uncle Sam if you agree to take care of your entire debt in a couple of months.

Ideally, the specified time frame for such payment is 120 days. The coronavirus, however, warranted a temporary extension to 180 days.


No Set-up Fee, but there might be Interest and penalties 

Since the payment plan is short term, you need not worry about the set-up fee, which is not the case with the long-term payment plan offered by Uncle Sam. However, there could be Interest and penalty payments until the payment of such balance.

 

How to Qualify

Your entire tax debt needs to be below $100,000 before you can qualify for such payment terms in a short time. Also, the application is limited to an individual basis, not a business. However, business owners that are independent contractors or sole proprietors can apply as an individual.


How to Apply

Your application can be online or by completing Form 9465. People that have previously made the application for getting Transcript, Online Payment, or Identity Protection PIN can simply log into the Uncle Sam portal with their existing user ID and Password.

One needs to supply some information for identity verification like SSN. You could have direct payment from your checking or saving account or by money order, check, or credit card.

 

  1. Consider Long Term Installment Agreement

You might need more than a couple of months for your tax payment so Uncle Sam allows for instalment payment in the long term. Ideally, this extends your payment for 72 months.


Setting-Up, Penalties and Interest 

You will pay some set-up fees, unlike the short term plan. However, there is a lower fee if you opt for automatic debit from your bank account and online application. However, payment through other options comes with a higher fee like:

  • Paying using a phone

  • Money order

  • Check

  • Online electronic payment 

  • Credit or debit card


How to Qualify 

For people that owe $50,000 or less, they can get a 72 monthly instalment plan. However, people who need above 72 months or with debt more than this will have to contact and supply the IRS with additional information.


Application Procedure 

Online application is possible for instalment agreement in the long term provided: 

  • Your total tax debt (Interest and penalties) is $50,000 or less, and you are an individual with your entire return filed.

  • Your entire tax debt (Interest and penalties) is $25,000 or less, and you are a business with all returns filed.


  1. Consider an Offer in Compromise 

Some taxpayers could indeed be financially distressed without the capacity to settle their tax bills. An arrangement called Offer in Compromise allows them to resolve such tax payments for less. In other words, an OIC agreement will involve the maximum they can pay within a short time. 

Uncle Sam considers various factors like expenses, assets, and income for considerations. There is an online tool on Uncle Sam’s website with which taxpayers can check if they qualify.


  1. Consider Currently Not Collectible 

There are financial hardship situations like income loss in which Uncle Sam allows application for currently not collectable status. With this, you can pause tax payment until you have a better financial situation.

With the improvement of your financial situation, you can go ahead and pay what you owe. Bear in mind that there will be Interest and penalties while you are in CNC status. Uncle Sam might place a tax lien on you, and future refunds might be directed to your tax payment. 

Qualification for CNC status involves producing documents like financial statements that reveal the status of your income. Uncle Sam will explore your asset to know if you have anything they can use for your tax debt.

Uncle Sam will also examine your living expenses and income to determine if an instalment agreement will be your best bet, rather than sending you to the CNC status. Approval for CNC status involves filing Form 433-F433-A, or 433-B.


FOR MORE INFORMATION ON HOW JIM McCLAFLIN, EA, NTPI FELLOW CAN BEST HELP YOU WITH YOUR TAX FILING NEEDS, PLEASE CLICK THE BLUE TAB ON THIS PAGE.


THANKS FOR VISITING.


Jim McClaflin, EA, NTPI Fellow
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