Tax Debt Loan Options
If you need time to pay off IRS debt, a short-term personal loan is one solution. You borrow money from a private lender and use that money to pay off your tax debt.
If you think you will owe money to the IRS, your first priority should be to still file your tax return by the deadline. It doesn’t matter if you can’t pay your taxes. Just get your return in on time. The IRS charges a steep failure to file penalty when you owe money and don’t file a return. For every month that you are late with your return, they add an extra 5% to your unpaid balance up a to a maximum 25% penalty. This adds up fast so don’t procrastinate on the filing. You will owe interest on the loan but the interest rate will likely be lower than the IRS interest rate plus the penalty. The better your credit score, the better your chances of qualifying for a loan with a low interest rate. In addition, with a personal loan you do not have to worry about the IRS eventually going after your wages or forcing you to sell your other assets, or filing a tax lien against your property. You just have to make your monthly payments on the loan. Many personal loans come with no prepayment penalty, meaning there is no extra cost if you are able to pay off your loan early to save on interest.
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Details about tax debt loans
The IRS can be unforgiving when you owe them back taxes — as are the interest and fees associated with late payments. But you may be able to pay off the IRS all at once and get a little peace of mind. In this guide, we cover personal loans as an option — how to get them and why they might be right for you. You can use a personal loan for nearly any legitimate purpose, which includes IRS debt. You can typically borrow between $1,000 and $40,000 and take between one and five years to pay it off. When applying for a personal loan, you’re generally asked what you plan to use your loan for. Your reason is a factor used by the lender when evaluating your application and could affect your approval as well as your loan’s terms. As you can imagine, paying taxes could be considered more responsible than paying for a vacation.
Not paying your taxes on time
You’ll pay a large penalty if you don’t file your tax return on time and owe money. Expect to pay an extra 5% of your unpaid balance — up to a maximum 25% penalty — for every month you’re late with your return. Even if you’re worried about how you’re going to pay your taxes, it’s a good idea to file on time if you want to avoid those hefty penalties. The IRS will still fine you, but it’ll be a lot less. You’ll pay 0.5% of the tax amount you owe for every month you’re late, up to a maximum of 25%. This is on top of the interest that accumulates on unpaid taxes. The IRS generally charges a 3% interest rate plus the federal short-term rate at a rate of 3% on top of the federal short-term rate. Going months without paying your taxes can have even more drastic consequences, with the IRS garnishing your wages, putting a lien on your property or even seizing your assets to pay them back. Not Filing a Tax Return Is Expensive. If you owe money to the IRS but fail to file a return, you will incur some fairly heavy penalties. In addition to charging you interest, the IRS will assess a failure-to-file penalty, which is usually 5 percent of the tax owed, per month, or part of a month that your return is late. The penalty will not exceed 25 percent of your unpaid taxes, according to the IRS.
Personal loan for tax debt
In most cases, a short-term personal loan is an ideal solution to pay off IRS debt. You can borrow money from a private lender, usually at a rate that is lower than the IRS interest plus penalty. Obviously, the better your credit score, the greater your chances will be for qualifying for a personal loan with a low-interest rate. If you don’t know your current credit score, you can check it for free here. There are several benefits of using a personal loan to pay taxes. When you pay off your tax bill in a lump sum, you don’t have to worry about penalties and interest from the IRS. You can also sleep better knowing that no one is going to garnish your wages, seize your assets, or file a lien against your property. Many personal loans have competitive interest rates and no prepayment penalties. This means you can pay off the loan as quickly as you want without paying any additional fees.
Using a personal loan to pay your taxes can be an attractive option, because — depending on your credit, income and a host of other factors — you may be able to get a lower interest rate than you would with a credit card. Until relatively recently, personal loans were typically available only through banks and credit unions, but several online lenders have entered the market, making personal loans available from a wider group of lenders. Although the IRS interest rate is lower, the failure-to-pay penalty charged by the IRS can really add up. Remember that credit cards and personal loans can have drawbacks as well, so make sure to do your research before deciding which payment method is right for you. Not having enough money to pay your IRS bill, including any income taxes, can be a common problem. But a good solution to that problem will be unique based on your particular financial situation. It can depend on the amount you owe, how soon you can come up with the money to pay your tax bill, and the interest rate you can get on a credit card or personal loan. The situation with credit cards can change significantly if you could open a credit card with a promotional offer (like an intro 0% APR on purchases) to take advantage of interest-free payments. Regardless of which option you choose, try to plan to have enough money set aside so you don’t fall short next year.