If you owe money to the IRS, the penalties and interest can become over half of what you owe in taxes. The IRS has three years to audit a company for owed taxes. If you own a business and owe payroll taxes, for instance, the amount owed can become overwhelming and as explained by Forbes, you cannot discharge payroll taxes in bankruptcy.
What options do you have when you owe taxes that you cannot pay upfront? There are two solutions that the IRS offers taxpayers. The solutions include an offer-in-compromise and a traditional installment agreement. Both options provide taxpayers with a means to pay taxes over time, but both have different benefits.
Benefits of an offer-in-compromise
An offer-in-compromise agreement allows you to lower the debt that you owe the IRS. Sometimes you can use this agreement to forgive the taxes that you owe, but some people also use it to avoid the penalties and interest added onto the tax payments. You can still pay your taxes over time.
Benefits of a traditional installment agreement
A traditional installment agreement provides you with a means to pay your taxes over time. As you pay the balance of taxes owed, the balance will continue to increase due to the interest and penalties. The period you have to pay is typically between 72 months or six years.
The traditional agreement has a quick application process, as opposed to an offer-in-compromise that can take anywhere from three months to three years to receive a determination. You also have a longer period to pay it down because the offer-in-compromise only gives you two years comparatively.