You are using an unsupported browser
Please switch to a supported browser so you can get the best experience on this site
Are you facing the daunting challenge of tax debt and exploring the possibility of securing a loan to alleviate your tax burden? You're not alone in this predicament, and the good news is that there are several options available to you.
Key Takeaways
Yes, you may want to consider taking out a personal loan to pay your taxes if you have exhausted other options and can afford the monthly payments.
Personal loans can make it easier to cover your tax bill, allowing you to pay off what you owe on time, and potentially preventing you from getting fined by the tax office. They tend to be quick, simple, and effective, so many people consider this strategy, although it is not the only option.
If you want to learn more about taking out personal loans or you want to start the process, you can get in touch with Simple Fast Loans, and we’ll be glad to give you more information about online personal loans.
There are various pros and cons associated with using a personal loan to pay off your taxes, with the biggest advantage being that you won’t owe money to the IRS and you won’t face any penalties for late payments.
Ultimately, the decision to use a personal loan to pay your taxes should be based on your financial circumstances and the overall cost-effectiveness of this option compared to alternative payment methods.
The risk of taking out a personal loan to pay your taxes is that you may not be able to pay the loan back in time. This can have a significant impact on your credit score and may lead to a variety of problems. You should therefore make sure you can pay back a loan if you’re going to take one out.
If you cannot pay your taxes, the first thing you should do is contact the IRS to discuss your situation. Do this as soon as possible when you realize that you are not going to be able to pay.
Most importantly, you don’t want to ignore the federal government, and it is in your best interest to contact them and resolve any tax debts.
There are several alternatives to using a personal loan to pay your taxes, so let’s explore these next.
To help out people who cannot pay their taxes all at once, the IRS does offer payment plans, and these are well worth considering if you are struggling to make your payment. There are two options; there’s the long-term installment plan or the short-term installment plan. Let’s understand both of these.
The short-term installment plan is paid off within 120 days, so if you only need a bit more time to cover your taxes, you can opt for this. It’s intended for people who can pay off their taxes fairly quickly, and it may be the better option if you think you can pay the taxes off soon.
You won’t need to pay fees to set this plan up, but you will be charged penalties and interest on the account until it has been completely paid off. If it’s possible to pay your debt off in less than the 120-day period, you should do so.
An installment plan may be suitable if you need more time to cover your debt. You will need to set this up with the IRS, including paying a $225 setup fee, as well as the penalties and accruing interest. That makes this method a less desirable one, but it may still be worth considering if you are struggling with your tax bill.
You will need to tell the IRS how much you can pay off each month, and they will either deny or approve the request. If it’s approved, you’ll be able to make the payments over the set period, gradually reducing what you owe.
If you’re a low-income taxpayer, the IRS may be able to waive the setup fee, so it’s worth discussing this with them if you’re struggling to cover it.
Another approach for covering your taxes is to use a credit card. If you can qualify for a credit card with a high enough limit and low interest, this could be a better option than one of the IRS’s payment plans. You will still pay fees, but some may be tax deductible.
This approach is often more flexible and the monthly payments are likely to be lower, but you will need to look at what rates you can get. If your credit rating is poor, it’s probably not going to be an attractive route to go down. You should weigh up the pros and cons carefully before deciding if this is right for you.
If you have a 401(k), you may be able to take out a 401(k) loan. This means dipping into your retirement fund, to pay it back. You should be aware that this kind of loan does still accrue interest, so it’s not a “free” loan.
You can take out up to 50 percent of what’s in the account, or $50,000 (whichever is the lower amount). If you’ve got $30,000 in your account, for example, you’ll be able to withdraw $15,000. You will usually have up to 5 years to repay this money, but you’ll need to check the terms and conditions to know for sure.
It’s important to be aware that these loans do include penalties if you fail to repay the money, and will usually be dependent on your employment. If you leave your job, you will be required to repay the loan more quickly.
Make sure you fully familiarize yourself with the pros and cons of 401(k) loans before you consider taking one out to pay your tax bill.
Another method that you may wish to consider is borrowing money from family or friends. This option is preferable for many people, because it can be arranged informally, and you may not be required to pay interest or fees. However, it is important to be aware that this approach does have some potential drawbacks.
For example, if you can’t pay the money back promptly, you may find that this spoils your friendship or puts stress on your family. If the other person is counting on you and you struggle to pay the loan back, this is often problematic.
It’s a good idea to draw up a written agreement that talks about fees and interest so that you can refer back to this. You should also make sure you have a plan for repaying the person who has lent you money, with an accurate idea of where the money will come from and how long the repayment will take.
There are a few other options when it comes to financing a tax bill, so let’s check these out next!
Another method for covering your tax bill could be to take out a loan or a line of credit against your home, assuming you are a homeowner. This can be an effective way of leveraging money, but it does have some drawbacks that need to be considered first.
One of the biggest is that this kind of loan usually takes time to set up, and you’ll have to get your home appraised by the bank before you can borrow money on it. This may take time, which might not work for you if you’ve got a tax bill waiting to be paid. However, if you can wait for the money, this could be a viable option.
Some people find this more comfortable than owing other kinds of debt and therefore prefer to take home equity loans.
A personal loan is another method that you can use to cover your taxes, and many people turn to this one, especially when they have tried all of their other options. If you’ve got a low credit score and you can’t get other kinds of loans, you might want to consider this.
It is important to weigh up the fees and other loan costs before you decide whether this is right for you. Calculate which of these approaches will allow you to pay the least overall, and you’ll know what’s best for you.
Another alternative is to use liquid assets to pay for your taxes. This involves using your portfolio of marketable securities to get a line of credit from a lending company. How much you can borrow will depend on what your portfolio will support, so this won’t be right for everybody, but it’s worth considering if you think it could work for you.
If you do opt for this method, you won’t have to pay any fees or other costs just for setting up the line of credit; you will only pay money for what you use. If you take out more money, you will need to pay more, but this can be an inexpensive option overall, and many people choose it.
Not everybody will be able to get a line of credit, but if you can, this is worth considering as a way of borrowing money. You can pay the money back when it suits you, rather than being under pressure to repay it quickly, so if you’ve got a good portfolio, this is a viable option.
If you owe money on your taxes, you have quite a lot of options for dealing with this, including raising money from family and friends, borrowing from a 401(k), using a credit card, taking out a loan, or working out a payment plan with the IRS. Carefully review all of these methods before you decide which is right for you.
Still have questions about taxes and loans, here are some additional questions our readers ask.
If you can’t pay the IRS the money you owe, you should get in touch with them directly; they may be able to set up an account for you or delay collection of the money for a period. However, you may be liable for fees, interest, and possibly penalties; make sure you discuss this when you speak to them.
The suggestions above may help you cover your taxes if you’re struggling.
In most cases, the IRS won’t forgive tax debt, but there are instances where this may happen. The IRS only has ten years to collect taxes owed; if they aren’t paid off at this point, they may be written off. Many taxpayers are not aware of this statute.
Sometimes, the IRS will also offer compromises, allowing you to pay less money than you owe. While these deals may seem attractive, it’s usually a good idea to consult a tax professional before agreeing to one, as this can be a very complex area.
Yes, you can get a loan with an existing tax debt. Owing taxes will not stop you from getting a loan in most cases; things like your credit rating and your current list of assets tend to be more important in determining how much money you can borrow.
Browse through the Blog to read articles and tips on managing debt, improving your credit and saving more money!
