Say you owed the state $4500 in taxes and are on a payment plan that you are current on. You also owe the IRS $18,000 and are trying to get a payment plan with them. As luck may have it you come into $5,000. Which do YOU pay? Pay off the state? Or see if the IRS will take the 5k call it good and keep up the payments to the state.
2007-05-06 18:18:53 · 5 answers · asked by Anonymous in Business & Finance ➔ Taxes ➔ United States
I hate to say it, but there really is no absolute answer. It depends on your income, age, future earning potential, and the amount of interest and penalties that each is charging.
Considering that you would already be on a payment plan with the state, it would make sense to continue on the plan, and negotiate a second plan with the IRS, using at least a portion of the $5000 as a down payment. The IRS often wants a large chunk down to agree to a payment plan. It would also reduce the interest and penalties going forward, as payment plans only hold off collection actions, not the penalties and interest.
If you are in a position where your ability to pay the entire amount is in question, you can try to file an "Offer in Compromise," which allows you to pay only a portion of the liability owed. However, this is not an automatic entry, and the IRS will require a lot of disclosure from you about your current assets, your expenditures, and your earning potential. All of this allows them to determine whether or not you will be able to pay off the entire amount. This process is not easy, and you are best off hiring a CPA or Enrolled Agent to help with the process. Be wary of companies that promise too much. They have no real control over the process.
I would consult a tax professional (a full-timer, not someone only there during tax season) to see not only about the possibility of an Offer in Compromise, but also to see if you have cause to get some of the interest and penalties reduced for whatever reason. Good luck.
2007-05-07 01:45:19 · answer #1 · answered by bjlevine 3 · 0⤊ 0⤋
Might be worth paying off the state so you only have ONE entity to deal with. But you could check on which one is charging the higher interest and penalties, and put the money there.
Gigi is not correct - the companies that advertise on TV that they'll negotiate tax reduction for you are NOT free, and can't necessarily get them reduced either. Unless there's no chance whatsoever that you'd ever be able to pay off what you owe to the IRS, they're not going to take $5000 against an $18,000 debt and call it even either.
2007-05-07 01:37:50 · answer #2 · answered by Judy 7 · 3⤊ 0⤋
Pay the state. IRS will work with you on payments, the state will freeze assets for non-payment.
2007-05-07 01:30:10 · answer #3 · answered by badbill1941 6 · 0⤊ 0⤋
I'd pay off the state completely. I don't think the interest and penalties saved by paying the extra $5000 on federal will help much.
2007-05-07 01:27:15 · answer #4 · answered by Mark S 5 · 0⤊ 0⤋
There are agencies that will go to make deals with the IRS and the State, and they are free. If you can get someone to watch TV or tape your TV during the day you will come across the advertisement. They will go in on your behalf. If you can get a hold of them, they will go on your behalf, and negotiate your debt away. I have a feeling that the Fed's will take the five thousand and call it even. You may want to get a professional just to make sure that things don't ge things don't get to messed up.
2007-05-07 01:29:42 · answer #5 · answered by gigi 5 · 0⤊ 5⤋