Are IRS Installment Tax Payments Deductible?
An installment agreement is one way to pay back taxes, interest and penalties to the IRS over time if you are unable to pay in one lump sum. Like a credit card payment, you are paying back the debt (plus any interest and penalties accrued) over time, rather than paying the debt all at once. This is the most widely used payment plan offered by the IRS and one that they are likely to grant you.
How Likely Are You to Be Granted an Installment Agreement?
The IRS is actually fairly open to granting installment agreements to those who need them. For example, if you owe less than $50,000 and are current on your taxes, you should be granted an installment agreement (generally for 72 months) from the IRS automatically with just a simple request.
If you owe more than $50,000, you will have to provide some detailed financial information, but still have a good chance of it being granted. You should be aware that, like a credit card, you are paying back not only debt, but interest and penalties that generally amount to approximately 8-10% as well. Depending on the size of your debt that can really add up fast.
Another thing to note is that you also get a say in determining your monthly payment, so give that some thought as you go through the process. If your installment agreement is approved, the IRS will want you to pay via payroll deduction or direct debit.
Are Taxes and Interest Deductible?
One very common question asked by taxpayers who are currently paying an installment agreement or who are considering applying for one is whether any portion of the payments are tax deductible.
Unfortunately, the answer for this is no.
Unlike tax breaks that you might get on your mortgage interest and property taxes, you are not allowed to deduct the interest or penalties that are part of an IRS installment agreement. You should be aware of this as you think through whether this kind of payment plan will work for you. Federal taxes are never tax deductible.
Getting Support for Big Tax Decisions
If you are struggling with back taxes or significant tax debt and are trying to decide the best course of action for paying off the debt moving forward, you may benefit from an outside opinion.
The team of tax professionals at Success Tax Relief can review your previous returns, verify the amount you actually owe to the IRS and help you determine how best to tackle the debt. An installment agreement is just one viable option that we can help you navigate. You also might benefit from an offer in compromise, which can allow you to settle a portion of your debt and pay the IRS less than you owe.
These negotiations can be tricky and stressful, and our team is experienced communicating with the IRS on behalf of our clients. Give us a call at 1-877-958-6638 and let us help you find relief from your tax debt.