Tax Time – Cash Or Credit?

It's that time of year again. Business owners hunt for receipts, students fill out financial aid forms and consumers run for the border. Tax season has become the woe of the middle class and savior of low-income college students. When you roll out that Rolodex or download that software, remember that you have plenty of options. Accountants, deductibles, even your payment methods are a matter of choice. Just remember that each choice holds a risk.

There are several alternatives when it comes to paying your taxes. You can pay, on time, via check. Don't have the money? You can negotiate a payment plan. The IRS tax payment plan charges monthly interest and a one-time fee of up to $105. You can lessen the fee if you have low income or set up a direct debit payment. To set up a monthly payment, file a Form 9465. Unlike most normal lenders, there is a time limit. If you work out a payment plan with the IRS, you are expected to pay the balance, in full, within three years.

If, for whatever reason, you can not pay your taxes on time, you may qualify for an extension. If you can prove to the IRS that you can pay your taxes by a certain time they can give you an extension from 30 to 120 days. If you do not qualify for an extension, there is always the option to pay late. The monthly fee is 1% of your due balance and $10 on a $1,000 balance.

Another option is to pay via credit card. By using your card, you buy yourself more time to pay off your taxes. But before you whip out the plastic, consider the consequences of using your card for taxes. The advantages of using a credit card is the prolonging of your payment and the reward points you could acquire. Be sure to check the restrictions on what counts for reward points. Some credit card companies do not deem paying a tax bill worthy of reward points.

A major disadvantage of charging your income taxes on your card is that it will be subject to interest. This interest is typically much higher than the 1% – 10% you would owe the IRS if you paid late. The IRS also charges a convenience fee for using a credit card. This fee varies and is dependent upon the service provider. It can vary from $1 – $3.95.

Know that if you use your credit card to pay your income taxes, your card issuer may consider you as a risk. Many companies would take a consumer paying his or her taxes as a sign that the person is financially struggling. As a result, your interest rates will go up. Not only will you be paying interest on your taxes, you will pay a much higher interest than originally intended. If you can't pay your bills and file for bankruptcy, you can not bankrupt your tax debt.

For more information on credit, visit http://www.icreditinc.com.

Stacy Evans
http://www.icreditinc.com