If you have considered paying your taxes with a credit card, you're not alone. The urge can be strong, if only because of the convenience factor. Some investors are tempted to pay this way in a lower income year, or if they are unprepared on April 15th, because they feel it's the smart call to be billed at a later date. But doing so can have serious consequences. Let's talk about some of those repercussions, why you should never pay taxes with a credit card, and what alternatives you have.
The IRS penalizes taxpayers who pay with plastic heavily. Uncle Sam charges a "convenience fee" and may also hit you with every penalty the law and Tax Code allows. You could end up paying an additional 2.25% of your tax balance. Most of us don't have that kind of money laying around to donate to the IRS. On top of all that, your credit card company's interest will mean you're paying more in the long run anyway. With hefty interest rates on some cards reaching 20% or more, these costs can become astronomical. The longer you take to pay off the credit card bill, the more you will pay. The only "winners" in this situation are the IRS and credit card companies--not the taxpayer.
Making payments with credit will affect your FICO score. This one mistake can follow you for years. Using large amounts of credit at once damages your credit, particularly if you have a hard time paying it off. The huge costs alone could also result in maxing out cards, which for most people means digging yourself into a deep hole of debt. Credit score damage has many real-world consequences, particularly if you are ever going to need a loan. But don't worry, there are better ways to get this job done.
Here are some of the options you have for ensuring you don't end up in nightmarish debt with the IRS.
Whatever your reasons are for wanting to make your tax payment with a card, firms with tax attorneys like Royal Legal Solutions can help. Our tax professionals can evaluate your personal situation and help you determine the best way to make your payments.
Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.
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