Tax Tip #183
Best Option When You Can’t Pay Taxes in Full
Today’s quiz: Taxpayer owes 10K to the IRS & 5K to the state (let’s say NJ), but only has 7K in available funds to use to pay the tax liability. Which is the best option:
A. Pay 7K to the IRS
B. Pay 3,500 to the IRS & 3,500 to the state
C. Pay 5K to the state & 2K to the IRS
D. Go to Vegas & gamble the 7K & hope to win 8K to cover the tax liability
If you said D, well, good luck with that. The answer, as with many tax-related questions, is it depends. If the state in question is NJ, NY, CO, DC, GA, IA, KY, LA, MD, ME, RI, VA, WI or WV the answer is C. The interest rate for all these states is 10% or higher where the Federal interest rate is “only” 8% currently.
However, if the state is CA, ID, IN, MT, NE or UT, the answer is A since these states have an interest rate less than the current Federal rate.
Does this situation pertain to you? Need help applying for a payment plan or installment agreement with the IRS or the state? Reach out to a team member to see how Goldstein & Loggia can help.
