If you or your company are overwhelmed by the burden of crippling taxes, then you might be considering getting a loan to pay off taxes.
IRS has a strict policy for taxes, which stresses out the taxpayers even further. If you're unable to pay your off debt, then you have other options like getting a loan to pay off taxes. Here's all the information that you'll need on loans to help you pay for your taxes.
How to proceed when you owe tax to IRS?
When IRS knocks on your door for taxes, ignoring it or not filing a tax return at all can cause a lot of problems for you in the future. You must send your return even if you're unable to pay off your taxes.
A hefty penalty is charged on failure to file a return, which adds an extra 5% each month up to a penalty of a maximum of 25%. However, if you don't pay your taxes over a long period, then the consequences are even more severe. IRS has the authority to seize your property or assets and garnish your wages to pay off your debt, which will destroy your credit score.
After filing your return, you can consider a loan to pay off taxes. A great way to securely go through this process is by getting help from a tax relief company.
Loan to pay off taxes
Dealing with your taxes as soon as possible should be a top priority. If you don't have cash on hand, then there are three types of loans that you can apply for, to pay off your taxes:
- A direct agreement with the IRS
- Paying off taxes with credit card loans
- Paying off taxes with personal loans
Paying off taxes with an IRS arrangement
IRS offers to negotiate payment plans for taxpayers that owe taxes of small amounts and have a stable income source. Additionally, if paying off your taxes hinders your monthly living expenses like food, rent, gas, etc., then those payments could even be delayed for a short term.
The installment agreement varies greatly from case to case and depends on your specific circumstances.
The interest rate on IRS installment agreements
Landing an agreement with the IRS to pay your taxes could be a reasonable solution for your taxes, but it won't necessarily be cheap. The penalty fees charged by the IRS largely determines the total cost of your installment agreement.
For example, if you owed $50,000 the regardless of your tax history, you can request for an installment agreement online and pay a fee. All tax payments to IRS have associated fees and interest. Therefore, you must consider these additional costs to your tax bill before taking up an agreement.
All installment agreements offered by the IRS have an interest rate of 8% to 10%. When you consider all of these costs, an IRS agreement can cumulate to a much higher price than taking a loan to pay off taxes. Besides, IRS will still have the right to file tax liens against you throughout the installment term.
However, that's not always the case, and you might even get better interest rates in an IRS agreement than a private loan to pay off taxes. Therefore, you must do your research on all your options before deciding on one.
Paying off taxes with credit card loans
Paying off your taxes with credit card loans isn't generally considered a good idea. Credit cards have higher interest rates than the agreements offered by the IRS.
However, if you are eligible to apply for a new credit card that offers an APR of 0% as its introductory rate, then it could be a much smarter option to finance your tax debt with. Make sure you'll be able to pay up on your card before the introductory period of 0% APR expires. The inability to do so can result in an interest rate that is as high as 15% to 29%.
Paying off taxes with personal loans
Taking a personal loan to pay off taxes is another option available to you. If you have a good credit score, then the probability of getting a personal loan to pay off taxes with a lower interest rate is significantly higher. It's necessary to compare the interest rate offered by the IRS with that of the private loan lenders to make an informed and favorable decision on your account.
Using a personal loan to pay off taxes offers many benefits. When the tax debt is paid off in with a single payment, then the IRS doesn't impose any additional penalties or interest rates. More importantly, your assets, property, and wages aren't under an imminent threat of being seized by the IRS.
Several personal lenders provide competitive interest rates with no prepayment penalties, which gives the borrower the opportunity to pay off their loan to pay off taxes faster and without having to pay any fees.
Compare several personal lenders in the light of interest rates, additional fees, and any other requirement to find out the best possible option for your particular situation.
Personal loan providers
Many major banks, credit unions, and several online lenders offer a personal loan to pay off taxes. With a growing online marketplace and competitive lenders, borrowers are presented with favorable offers of competitive interest rates, fast funding, and more relaxed terms and conditions.
Due to a variety of lenders, many personal loans offer much better cost and overall agreement than IRS installment agreements.
However, it's important to note that the best offers are mostly offered to borrowers with excellent credit scores. Therefore, you must consider all your options.
Home equity loans or IRS installment agreement?
Home equity loan or home equity line of credit (HELOC) could be one of the options to pay off your tax debt if you own a home. Home equity loans, if offered with lower interest rates than what the IRS installments charge, could be considered only when you have substantial equity in your home.
In simpler terms, to qualify for a home equity loan, the market value of your home needs to be higher than the balance of your mortgage. However, putting your home up as collateral is risky, and you should consider all the other options before settling for this one to pay off your tax debt.