Situation: Your client filed her federal tax return by April 15 but did not include a check for the amount due, because she did not have funds available. She has come to you for advice as to how to proceed.
Solution :< /b> Your client may request an Internal Revenue Service installment agreement, pay the tax liability by credit card or make an electronic payment. If you client does not have the funds readily available since filing her return by the due date, the best advice would be to instruct her to apply for an installment agreement.
Your client will accumulate interest and penalties until the entire tax liability has been paid in full. Therefore, the sooner your client fulfills her obligation, the less in interest and penalties she will pay. The failure to pay a penalty is .5% per month or part of a month, up to a maximum of 25%. of the amount still owed. The penalty rate is cut in half to 0.25% while a payment plan is in effect.
You client can apply for an installment agreement, which would allow your client to make payments of tax owed in monthly installments. If the amount owed is less than $25,000, she may apply electronically via the IRS’s website at (click on Individuals, then on Online Payment Agreement Application). The IRS will charge a setup fee of $105, or $52 if the payments are deducted directly from a bank account.
Your client may consider charging her tax liability to a credit card. If she chooses this option, the credit card company may charge her a convenience fee of 2.5% of her tax payment. Therefore, if her tax liability balance is $10,000, the convenience fee could be $250. However, this fee is tax-deductible as a 2% miscellaneous itemized deduction.
If your client has gained access to funds since filing her return, she could have the funds electronically withdrawn from her bank account or use the Electronic Federal Tax Payment System (EFTPS). The payments can be made online or by telephone.
