The Blog Of TL Wall Accounting

Archive for October, 2015

Three Things To Know About State And Federal Tax Arrangements

A couple of years ago we wrote a post recommending that, if you owe money to either the IRS or the state, that you call them and make payment arrangements with them. They’re pretty easy to work with in setting up the arrangements, and you can also do this online. However, there are some caveats you should know before you start the process.

The first is that you don’t want to wait until the last minute to try to reach them on the phone. That’s because you’re not going to be the only person trying to reach them, which means you will either have a very long wait or, believe it or not, you won’t even get through.

If the IRS determines your wait time might be longer than an hour, they’ll actually tell you to call them later and hang up on you; how rude! If you keep trying to call them within that time period you can bet you’re going to keep being rejected. You could end up calling for many days before you get through.

Truthfully, the best time to call them is the middle of the afternoon, after 3PM; at least you’ll probably get on the waiting list, which will still be long. Most people are trying to get the IRS on the phone first thing in the morning, thinking they’ll be able to beat everyone else to the punch; you can imagine the numbers of people clogging up the lines.

So far, we haven’t heard of anyone calling the state and having them hang up on you, but you could easily be waiting a long time to talk to someone.

The second thing to know is that you have to set an amount to pay off your claim in a certain amount of time. It’s based on how much you owe and who you owe.

The IRS will work with you if you owe a very high amount. They’ll often let you set a rate where you’ll have your balance paid off within 20 years if it’s high. Otherwise, they’d like you to have it paid off within 5 years.

The states are a different animal. Depending on which state you’re in, they’ll want the balance paid off any time between two and four years, which means you’ll have to find a way to fit your requested monthly payment into that slot. Luckily, state taxes are rarely all that high for most people and businesses, so it’s a lot easier on you to address them.

The third thing to know is that if you have a payment arrangement in one year and you end up owing the second year and can’t pay, you can have your agreement altered to include both years. However, you only get to to this once; if you have a third year they’ll consider you in default and you’ll have bigger problems to deal with.

If you’re the state, the rules differ. Since we’re based in New York we’ll talk about our rule. If you need a second year, the first thing the state does is reports to the credit bureaus that you’re in default for the first year. Then they’ll allow you to add the new amount to your previous balance. However, the deed is done because that’s a bad thing to have on your credit record until it’s paid off.

You’ll have a hard time getting any credit during the period you have an open balance with them. Once it’s paid off, when you get the letter saying it’s been taken care of you can send that to each credit reporting agency and ask them to remove it; however, there’s no guarantee that they will, though most people report that they usually do.

As we recommended two years ago, it’s always better to be proactive in these instances. These agencies are willing to work with you; it’s their job.

The Importance Of A Good Credit Score

Everyone has heard the term credit score. Not everyone really understands its purpose or why they should try to have a good number. Most people only know they should have a good number; they just don’t know what it is.

Let’s get the immediate question out of the way. A good credit score is considered as any number over 720. There are a lot of things that are considered for a credit score, and since each agency seems to do it different, you could have a good credit score at one and not the other. That’s why it’s always good to get your free credit report annually via the federal government’s agreement at the site Annual Credit Report, which we’ve just linked to.

At best you can see what your balances are all in one place, see how the 3 major organizations see your credit, verify if there’s anything outstanding that you didn’t know about or that you might need to refute, and most importantly, see if there’s something on there that doesn’t belong to you. in this day of credit card numbers and social security numbers being hacked, it pays to know.

Even though it’s hard to discern all the factors, there are some key factors that are easily tracked, that you probably already know about to some degree.

First, late payments. Many creditors will report if you’re more than 30 days late with a payment. Not all of them will do this however; usually health care entities will wait at least 120 days before reporting you, which most people don’t know about.

If you’re late with a credit card payment, it’s getting reported. If you’re late with a car payment or mortgage payment but you call them, they’ll usually give you a break. Actually, if you know you have money coming for a credit card payment and you call them ahead of time, they’ll usually give you an extension of 7-10 days as long as you’re not a repeat offender.

Second, too many outstanding credit balances. Most of these concern credit card debt, so if you have a lot of credit cards with high balances that will bring your score down, even if you’ve never missed a payment. Mortgage balances aren’t always taken into account; the same goes for car payments.

Third, not having enough credit for a credit history. As strange as this one seems, if you’ve only had one credit card in your entire history and want to get a loan for anything, your credit score might not be all that high because you don’t have a proven history of paying a lot of bills. This one doesn’t make sense, but the next one makes even less sense.

Fourth, paying your balances off each month. This is something that a lot of financial advisors recommend that you do but it comes with a problem as it pertains to credit scores. If you immediately pay off your balances all the time, credit agencies feel they can’t predict how you’ll react if you suddenly have to carry a balance on something. So, they’ll penalize you by not giving you a great credit score; isn’t that petty?

With that said, the last one is still preferable if you can do it. If you need to get a loan for a house or car, those types of companies won’t hold your lack of borrowing against you. As a matter of fact, it’s possible that mortgage companies will be more willing to give you a better rate, especially if you can put down at least 10 – 20% of the downpayment on your home at the time of purchase.

These are the biggest factors that can affect your credit score. In any case, it’s always better to know where you stand, so be sure to get your free credit report.