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How to Calculate the Interest Rate on an IRS Installment Agreement

How to Calculate the Interest Rate on an IRS Installment Agreement

By on Aug 29, 2018 in Debt Relief | 0 comments

How to Calculate the Interest Rate on an IRS Installment AgreementIf you are late submitting and/or paying your annual tax filing, then you need to prepare your finances to pay more that what you actually owe. This is because the Internal Revenue Service (IRS) penalizes taxpayers for each day they’re late filing and/or paying their taxes. This is where tax debt can get out of hand quick, fast, and in a hurry.

The Frustration of Making the Best out of a Situation

The stress of knowing that your tax debt will balloon each day your account is neglected can be stressful. Even if you are communicating with the IRS, there isn’t always a resolution at the end of every phone call. Tax matters can become complicated as the deadlines continue to be missed and it might seem impossible to determine exactly how much money you actually owe as the interest and penalties continue to increase.

Determining the Tax Payoff Amount

There is a way to calculate exactly how much money you’ll need to pay off.
Two determining factors are the date in which you plan to pay the debt off and how much money you can afford to pay in one lump sum. We understand that for many, if they could afford to pay the lump sum, there wouldn’t be a tax issue to begin with. However, the amount in which one can afford to pay will contribute to the payoff date. The longer the payoff date is extended, the less the monthly payments might be, but you then have to account for the penalty and interest rates. So in reality, the quicker you’re able to pay your tax debt off, the less money in penalties and fees you’ll have to pay. Paying more upfront will actually save you more money.
Here are a few things you’ll need to know in order to calculate the interest rate on an IRS Installment Agreement: 
1. Determine what type of taxpayer you are.
Tax matters start getting complicated when you run a business. If you own a business, then you’ll have to be a bit more specific in determining the type of taxpayer you are. It will be one of the following:

  • Individual
  • C-Corporation
  • S-Corporation
  • Limited Liability
  • Partnership
  • Trust
  • Estate

2. Whether or not you filed an extension
The IRS takes other items into consideration like whether or not you’ve filed an extension before.
3. When was the return actually filed?
The interest and penalty fees will be accrued from the date the tax filing and/or payment was originally due.
4. What is the payoff date?
The payoff date marks the end of the accrual of interest.
5. Types of Penalties
There are two types of penalties:

  • Failure to file
  • Failure to pay

Each of these penalties has its own fee. According to The Motley Fool, IRS’ interest rate is determined by the Federal short-term rate plus an additional percentage.

What Else Do You Need to Know?

There is much more to know and understand about calculating the interest rate on a tax payment installment. Success Tax Relief can walk you through it. Call one of our experienced consultants for a free consultation today at 1-877-825-1179 or contact us online.

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