Those who face significant tax debt may wonder how they will pay the bill. Some may consider using a credit card. If the card has low rates and you know you can make regular payments, this could be a reasonable option. Unfortunately, most credit cards come with a high interest rate or increase and add penalties with a missed payment. As such, this is often not a great option.
Others may consider taking out a loan. Three potential benefits of a personal loan to repay tax debt can include:
- Low interest rate. This option can make sense if you can get a loan with a fixed, low interest rate. It is important to read the terms of the loan carefully to make sure there are no hidden fees.
- Clarity. A personal loan is generally a very clear and transparent agreement. Everything should be outlined in the terms of the loan. If you go with a reputable institution and read and understand the terms there should be no surprises.
- Ease. It is relatively easy to get a loan. In many cases, you simply provide information and know within a day or two if approved.
Although these benefits are tempting, a personal loan is not always the best choice.
Consider options that are designed for tax debt
The Internal Revenue Service (IRS) has tax relief programs designed specifically to address tax debt. Two common examples include:
- Installment agreements. Like a loan, an installment agreement involves a repayment plan over a set period. Although the plan generally does not include interest or penalties, it is important to note that interest and penalties can continue to accrue on the tax debt itself.
- Offer in compromise. This option involves the taxpayer offering the IRS an amount lower than the actual tax bill. This is generally available for those who can show the tax debt causes significant financial hardship. If accepted, the offered amount settles the bill, and the IRS essentially erases the remaining balance.
These are just two options to consider when trying to figure out how to pay a large tax bill. The attorneys at Goldburd McCone can discuss the benefits and risks of these and other options so you can better ensure you make the right choice for your financial future.