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Quick tip from someone who's been through this multiple times: If you can pay within 120 days, you don't technically need to set up a formal payment plan. You can select the "payment plan" option when you e-file, but choose "one-time payment" and set the date up to 120 days in the future. This way you avoid the installment plan setup fee (which is $31 for online payment plans), but you'll still pay the interest and late payment penalties. Just set a calendar reminder because the IRS won't send you one!
But isn't it better to break it into multiple payments? What if I can't come up with the entire amount in one payment, even after 120 days?
If you can't pay the full amount within 120 days, then you definitely want to set up the installment agreement with monthly payments. That's a different option in the online payment system. The installment agreement is great if you need more time, but it does come with a setup fee and you'll have to make regular monthly payments. With the 120-day option, you're just telling the IRS you'll pay in full by a certain date, and they don't charge a setup fee for that arrangement.
Is this really worth stressing about? I just didn't file for 2 years when I couldn't pay, and eventually they just sent me some letters. I paid it all last year and everything was fine.
This is TERRIBLE advice! Not filing is the worst thing you can do. The IRS charges a failure-to-file penalty of 5% of your unpaid taxes for each month your tax return is late, up to 25%. The failure-to-pay penalty is only 0.5% per month. Plus, there's a statute of limitations on how far back the IRS can audit you, but it doesn't start until you file. So by not filing, you're keeping yourself open to audit indefinitely. I learned this the hard way. Don't repeat my mistake.
Don't forget that besides the training, you'll need to get your PTIN (Preparer Tax Identification Number) from the IRS before you can legally prepare returns for compensation. It's pretty easy to get one on the IRS website, costs around $35.95 for new applications I think. Also, consider what tax software you'll use. Professional versions of tax software can be expensive, and that's an additional investment beyond just the training. I started with Drake Tax Software because they had a good balance of features and cost for a newbie.
Thanks for mentioning that! I had no idea about needing a PTIN or the software costs. Are there any decent budget options for software when just starting out with a few clients, or do you really need to invest in the professional versions right away?
There are definitely budget-friendly options when you're just starting out. TaxAct Professional and TaxSlayer Pro offer lower-cost entry packages for new preparers with a small client base. Some even have pay-per-return options which might be more economical if you're only doing a handful of returns. Drake also offers a "pay-per-return" option that might work better for your first season than their full package. I'd recommend trying the demos of a few different software options before committing - they all have different interfaces and workflows. ProSeries and Lacerte are more expensive but very popular if your business grows.
One thing I haven't seen mentioned - consider specializing in a particular niche rather than trying to be a generalist. When I started doing tax prep on the side, I focused specifically on gig workers and rideshare drivers because there were so many in my area. By specializing, your marketing becomes easier, you can charge premium rates for your expertise, and you don't have to learn EVERYTHING about tax law at once. You can gradually expand your knowledge base as you go.
You could also consider using a US-based friend or family member's bank account if you have someone you trust. I did this when I moved back to France - my sister in the US made the payment for me through Direct Pay and I just sent her the money via TransferWise (now Wise).
Is that actually allowed by the IRS though? Wouldn't they want the payment to come from the person who owes the tax?
The IRS doesn't actually care who makes the payment as long as it's properly credited to your tax account. You just need to make sure the payment includes your name, tax ID number, form type (1040-NR), and tax year. This is common for married couples where one spouse pays both tax bills, parents paying for their kids, or employers paying for employees in some cases. The key is making sure the payment information correctly identifies whose tax account should be credited.
A tip from someone who's been through this: if you owe less than $1, the IRS actually doesn't require you to pay it! They'll just write it off. For anything $1-$50, they technically require payment but I've never heard of anyone having issues if they don't pay tiny amounts.
This is terrible advice. The IRS absolutely tracks everything, even small amounts. My friend ignored a $12 balance and two years later got a notice with penalties and interest that had grown to over $40. Just pay what you owe.
I went through this exact situation with about $30k in back taxes. Here's what I learned: you don't necessarily need a lawyer right away, but you DO need someone who understands tax resolution. Start with a free consultation with a tax attorney AND an enrolled agent (EA) or CPA who specializes in tax resolution. Compare their approaches and fees. Many offer payment plans. For me, an EA ended up being the best value - they got my penalties reduced through abatement (saved about $5k) and set up a manageable payment plan. They charged me $1,800 total, which was WAY less than the attorney quotes I got ($5k+). Whatever you do, DO NOT use one of those "tax relief" places that advertise on radio/TV. Complete ripoffs charging thousands for what you could do yourself.
Did the enrolled agent help negotiate a lower amount overall or just handle the payment plan? Wondering if it's actually possible to get the IRS to accept less than what they say you owe.
The EA didn't get the actual tax amount reduced - that's rarely possible unless there are actual errors in how your tax was calculated. What they did get reduced were the penalties, which in my case had added about $7k to my original tax bill. They managed to get about $5k of those penalties removed through the first-time penalty abatement program and reasonable cause arguments. They also made sure I was claiming all legitimate business deductions that I had missed on my original filings, which lowered the taxable income and therefore the tax due. This is different than "negotiating" with the IRS - it's just proper tax preparation that I had failed to do correctly.
Has anyone used an Offer in Compromise? I've heard you can settle tax debt for pennies on the dollar but it sounds too good to be true.
I tried for an OIC but got rejected. They look at your income, expenses, assets... basically if they think you CAN pay (even over time), they won't accept less. Those radio ads are super misleading. Like 40% of OICs get accepted, and usually for people with serious hardships or very little income/assets compared to their debt.
Thanks for sharing your experience. That's pretty much what I suspected - those ads do sound way too good to be true. I guess I'll look more into payment plans instead since I do have a steady income. Did you end up with an installment agreement after your OIC was rejected?
Zoe Wang
One thing nobody mentioned yet - there are income limits for a lot of credits that phase out as you make more money. Last year I got a raise that put me juuuust over the limit for the full American Opportunity Credit for my son's college and it suuuucked. Make sure you check the income limits when planning!
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Tyler Lefleur
ā¢This is really helpful info, thanks! Are there similar income limits for deductions too? I got a decent raise this year and I'm wondering if that might affect what I can claim when I file in 2025.
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Zoe Wang
ā¢Yes, many deductions have income limits too! Student loan interest deduction starts phasing out at $75,000 for single filers, traditional IRA deduction has limits if you have a workplace retirement plan, and medical expense deductions only count for expenses over 7.5% of your AGI, so higher income means fewer medical expenses qualify. If you got a big raise, definitely look into maxing out your 401(k) or other retirement accounts since that lowers your AGI and might help you qualify for more deductions and credits that have income limits.
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Connor Richards
Does anybody know if the tax software like TurboTax will alert you if you're eligible for a credit but didn't claim it? Or do they just process whatever info you give them without checking?
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Grace Durand
ā¢In my experience, they do ask questions to try to determine eligibility, but they're only as good as the information you provide. If you don't know to mention something or misunderstand a question, you could miss out. I accidentally skipped some education questions last year and nearly missed a $1500 credit!
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