Some choices don’t apply to everything. You typically hear “paper or plastic” at the grocery store, “debit or credit” at most every store, and as with nearly every outlay of funds you have the choice of “cash or credit” when paying taxes. Using a credit card to pay your tax liability is an attractive option if you are also able to pay your card balance in full every month, and avoid accruing interest. It is likewise a good option for those that use cards offering points or other rewards. If you play it just right, you might be able to pay off Uncle Sam and while getting a refund from your credit card company.
A word of caution though, if you use a card with a low or zero rate promotion, be sure to pay the balance prior to expiration of the promotional rate. Failing to do so could result in months of interest being added to the balance thus wiping out any savings you gained from the initial low rate. Another option is to take a line of credit if you are a business or homeowner, and those rates may be less than the penalties paid when paying taxes out over several months to the IRS. Keep in mind that if you use your home as an asset for a line of credit, you might have the ability to use the interest paid as a tax deduction the next year.
Other reasons it might help more than hurt to use credit to pay taxes:
- The monthly penalties incurred from the IRS are typically more than a low to mid-rate credit card.
According to the IRS, the late-payment penalty is either 0.5% or 1.0% of the tax owed for each month the tax remains unpaid. If you did not file on time and owe tax, you may owe an additional penalty for failure to file on time. The combined penalty is 5% for each month that your return was late, up to 25%.
- Using a credit card can buy you some time if you aren’t able to make payment in full when filing your return.
- Regular, on time credit card payments help establish or rebuild credit.
Our attorneys are skilled at identifying ways to help you alleviate your tax issues, while also looking for every advantage you might be able to use.
If you have questions about taxes and repayment plans, call the office Heinkel Law Group, PL for assistance. Our attorneys, CPA and IRS Enrolled Agents (#EnrolledAgent) are skilled at identifying ways to help you alleviate your tax issues, while also looking for every advantage you might be able to use. We can be reached at 407-629-5923 or (727-894-2099) and by email at steve@TaxProblemSolver.com, and visit our web site www.TaxProblemSolver.com. One of our skilled legal professionals will schedule an appointment with you to discuss the particulars of your case.@HeinkelTaxLaw