IRS Installment Plan vs 0% CC to pay taxes

Marcos8 · ‎03-26-2014

Hello all! I have a question about what would be the best way to pay the taxes I owe for last year. Quick history is that my wife lost her job and due to that I wasn't able to send in any of my quarterly taxes for the year since we needed the money. The final amount I owe is still being calculated by my accountant. She has since found a job and I am no longer independent and get a salary each week where taxes are deducted. So it appears that the situation I am in right now should be a one time event. I'm pretty certain that whatever the amount I owe will not or cannot come from personal savings. It would create a huge dent or eliminate it completely. I have read about an installment plan with the IRS and from what I have read here it will not affect or show up on my credit as a debt or a lein and I can pay over time. But it is associated with interest and fees that I read can be high. I also am contemplating putting it on an AMEX (BCP opened in Oct of 2013) that has a limit that should easily cover the balance no problem and is at 0% till Jan 2015...

The installment plan sounds inviting as it wouldn't affect my credit at all or show up on my reports (I think but please correct me if I'm wrong) but the interest, fees, and owing an outstanding debt to the IRS makes me uneasy. Putting it on the card I know will for part of this year really mess with my utilization and therefore score, but it's at 0% and the debt to the IRS is paid and I can sleep a bit easier. I also don't want to spook AMEX who we all know is paranoid. What do you think is best? I am also open to any other opinions and options as well. I don't really have any other CC debt and my overall UTL is very low. Thanks for you input!

user5387 · ‎03-26-2014

I believe there are both penalties and interest.

Sometimes the penalties are waived, but presumably the method you choose to pay your bill will not affect such a waiver.

I believe the interest rate on underpayments is currently at 3% a year, which is very low. See this article:

http://taxes.about.com/od/backtaxes/qt/irs_tax_penalty.htm

I would suggest finding out the exact details before making a decision.

If the amount would be more than around 50% of your Amex CL, then I'd probably go the installment route.

Revelate · ‎03-26-2014

@user5387 wrote:
I believe there are both penalties and interest.

Sometimes the penalties are waived, but presumably the method you choose to pay your bill will not affect such a waiver.

I believe the interest rate on underpayments is currently at 3% a year, which is very low. See this article:

http://taxes.about.com/od/backtaxes/qt/irs_tax_penalty.htm

I would suggest finding out the exact details before making a decision.

If the amount would be more than around 50% of your Amex CL, then I'd probably go the installment route.

This. A lot of the older information found on the net is from when the the penalty interest rates were much higher than they are in today's market.

I don't know about financing it on a 0% offer from Amex and it might be excluded on the T&C anyway; I know I put a bunch of random tax payments (some from penalties) on my Amexes and they never said boo, but I paid them at the latest when the statement cut.

That said, an installment agreement can be a real PITA to negotiate and manage (you effectively do a statement of assets / income not dissimilar to a Bankruptcy filing in terms of details). Everyone I've talked to has suggested things can go all sorts of sideways and you're pretty much SOL. The information you found is correct that there won't be any notation in your credit report, even if there were an underlying lein associated with it an installment agreement can get it airstruck (Fresh Start program goodness) so that's moot, but the IRS will always assume the worst of you even if they screw up: the worst bank is easier to deal with in my estimation and the many different tentacles of the IRS don't communicate well with each other unfortunately though it sounds like your issue is open and shut compared to my own issues as you're talking current year taxes anyway.

Realistically speaking, it may be in your best interests to just make unstructured payments if you're talking a year or whatever to pay it off, but I'm not a tax expert and that advice should not be taken without further consultation. The enforcement arm of the IRS isn't going to do much until an assessment is done and that is typically 3 years later. Do see about filing an extention regardless.

Marcos8 · ‎03-26-2014

A lot will depend on the final figure I get from my accountant. I may be able to make a partial initial payment and then stretch out the rest. After a payment plan is set up can I send in more than the intended amount each month if I have the funds to do so? Is it a problem to pay it off early?

What kind of things can go wrong when setting up an installment plan?

Would AMEX spook with a sudden big increase in UTL on their card if all of my other accounts were at and stayed near zero throughout the repayment period?

NoAnchoviesPlease · ‎03-26-2014

@Marcos8 wrote:
A lot will depend on the final figure I get from my accountant. I may be able to make a partial initial payment and then stretch out the rest. After a payment plan is set up can I send in more than the intended amount each month if I have the funds to do so? Is it a problem to pay it off early?

What kind of things can go wrong when setting up an installment plan?

Would AMEX spook with a sudden big increase in UTL on their card if all of my other accounts were at and stayed near zero throughout the repayment period?

I've had to do installment plans before... it wasn't too painful (even when I had to reinstate one a while back, just paid another fee and rolled it in). I've always had smaller (under $10k) amounts; it may get more complicated the higher your balance is.

You can pay in advance as much as you want, as far as I've seen. As long as you pay at least your agreed-on payment amount each month by the due date, they're okay with it. I usually pay an extra bit so I can tell which payment was the last one recorded when they send their monthly statement and reminder. You can pay balance in full at any time as well, although you may want to get a payoff estimate if you do that outside of the payment schedule.

12/29/2015 669/696/706
01/10/2016 698/711/730 but still to and fro a bit

Climbing to 700 and beyond. It's too cold for gardening.

takeshi74 · ‎03-27-2014

@Marcos8 wrote:
What do you think is best?

Define "best". For many, paying less would be best. If that's the case for you then do the math and compare the options. IIRC there's a fee for charging such payments if it's even possible. Make sure you're figuring in all costs on both sides.

@Marcos8 wrote:

Would AMEX spook with a sudden big increase in UTL on their card if all of my other accounts were at and stayed near zero throughout the repayment period?

Really all depends on your credit and how long and how much the utilization would be. Forum users like to parrot "AmEx doesn't like carrying balances" but that's an overgeneralization. It's certainly possible to carry a balance without adverse action and that applies to any creditor. I've carried balances with multiple AmEx products on intro offers but I've always kept utilization under 30% and put myself under a payment plan to eliminate the balance before the offer runs out. All we can tell you is that prologned high utilization always runs the risk of AA regardless of creditor.