Can't pay your taxes? Don't ignore the situation. You might be better off making it work with a loan.
Even though the official tax season is over, I still get questions from readers about the options available when they can't pay their taxes. This is because tax debt doesn't just go away because tax season is over.
Working to pay your taxes as quickly as possible makes sense because the longer you wait, the more you'll owe in interest and penalties. In some cases, it even makes sense to borrow the money to pay your taxes, depending on where you stand.
IRS Payment Plan: Best Option
If you owe money on federal taxes, one of your best options is to set up an IRS payment plan. You can set up an online payment agreement based on your situation and what you owe. This agreement is still considered a loan, but the interest rate you receive is likely to be lower than what you would see if you paid your taxes using a credit card or some sort of fast money loan. It might even be cheaper than getting a personal loan at your local bank (double-check rates to be sure).
But what happens if you don't have access to the IRS payment plan?
State Taxes and Property Taxes
When figuring out how to pay your tax debt to your state or your local government, things can be a little more difficult. You can usually set up a payment plan for state income taxes. I had to do that before?when I didn't adequately plan for my tax debt. It's not the ideal situation, but it still cost less than the other alternatives.
Another option is to take out a loan. There are companies that provide property tax loans?aimed at allowing you to pay off your debt to the local government and then making more manageable payments. However, it's important to note that these types of loans can be very expensive, coming with a high interest rate. As a result, it makes sense to double-check for installment plans.
Other options for paying state and property taxes, if an installment plan through the taxing authority isn't available, include credit cards and other types of loans. If you have the ability, it might even be worth it to borrow from friends or family in order to pay your taxes. They might offer much better terms overall.
Be Aware of the Cost
Whenever you take advantage of loans, you need to be aware of the cost. This is especially true when it comes to “fast money” loans. Whether you are trying to ease your business cash flow with some sort of merchant account cash advance or whether you just want to pay your taxes, getting an outside loan to make it happen can be costly. You might end up paying many times the amount you borrow in interest rates.
Any type of financial decision or loan requires tradeoffs. If you just need to make something manageable, and you are more concerned about cash flow and affordability, you might think it's worth it to pay a higher cost for the long run. On the other hand, if you want to pay as little as possible, you need to find a way to pay off your tax debt as quickly as possible.
Of course, the best solution is to plan ahead so that you are prepared for these costs. I've been in situations where I've had to pay the higher interest cost that comes with not thinking ahead. I've learned my lesson, and I try to do what I can to stay on top of what I know I'll owe. That way, I?don't have to pay interest at all (and I?end up with greater peace of mind).