Last Updated on 05/14/2024 by Christian Collins
IRS Tax Payment can sometimes feel like a confusing puzzle, and figuring out what you can and can’t deduct can be a real head-scratcher. In this article, we’re here to simplify things and answer a common question: Can you deduct your tax payments to the IRS? Let’s break it down in plain terms.
What's an IRS Tax Payment?
Imagine breaking down a big bill into smaller monthly payments – that’s how an installment agreement works. It’s like making gradual payments on a credit card. If you can’t pay your tax debt all at once, this can be a helpful option. The IRS is usually open to granting these agreements, making it a go-to choice for many.
Your Chances of Getting an Installment Agreement
If you owe less than $50,000 in taxes and are up-to-date with your filings, you’re likely to get an installment agreement with just a simple request. For higher tax debts, like over $50,000, you might need to provide more financial info, but you still have a good chance of approval. Remember, you’re not just paying off the original debt – interest and penalties (around 8-10%) are also part of the deal.
You have a say in how much you pay each month, so choose wisely. If your agreement gets the thumbs up, the IRS will want you to pay through payroll deduction or direct debit.
Can You Deduct Taxes and Interest?
One big question is whether you can deduct any part of your installment payments. Unfortunately, the answer is no. Unlike deducting mortgage interest or property taxes, you can’t deduct interest or penalties from your IRS installment payments. This is important to consider when deciding on this payment plan.
While federal taxes aren’t usually deductible, there’s an exception for self-employed folks. They can deduct a portion of self-employment taxes paid. But regular workers can’t reduce their gross income by paying their quarterly federal income taxes.
New Tax Rules for the Self-Employed
In 2018, tax rules changed for the self-employed. If you make up to $128,000, you’re subject to a 15.3% self-employment tax. For instance, with a $100,000 income, you’d owe $19,645 in taxes, best paid in quarterly installments of $4,867, without deductions. Also, the federal standard deduction went up to $12,000.
Penalties and Interest: No Deductions
The tax code says you can’t deduct penalties or interest from the IRS. Fines for violating laws aren’t deductible either, including penalties for misreporting income or claiming false tax deductions or credits.
Deducting Back Taxes and Tax Refunds
Yes, you can deduct state and local income taxes (SALT) for the current tax year, even if you’re paying them late. But you can’t deduct interest or penalties. For federal taxes, no luck – they’re not deductible.
Starting in the 2018 tax year, there’s a limit to deducting state and local taxes, set at $10,000 annually.
Conclusion
Don’t get lost in the tax maze. Understanding what you can and can’t deduct is key to making smart financial choices. While some payments might be deductible, others aren’t, like interest and penalties. Reach out to a tax pro to make sure you’re on the right track. Priority Tax Relief is here to help, offering expert guidance. Don’t let confusion hold you back – take control of your taxes today.