How to Deal with an Unexpected Tax Payment

how to deal with an unexpected tax payment

Life sometimes throws you a curveball, and it leaves you frozen at the plate. That’s what happens when you are charged an unexpected tax bill. And when it does, what do you do?

Pay Your Taxes

When the government charges you for taxes, there’s not much you can do but pay for it. After all, it is the patriotic thing to do. Now, what happens when you get the bill, and you don’t exactly have the money on hand to pay for it? You find other ways to do it. There are several ways you can choose to do this, and here are some of them:

Credit Card

If you have a credit card, you might want to consider using it to pay your taxes. Now, this is both a good and bad idea. It’s a good idea because it will allow you to pay off your taxes; a bad idea if your credit card has a high-interest rate and you’re not prepared for it. If you do choose to use your credit card to make the payment, make sure that the credit limit is enough and that your card’s APR is low.

A Bank Loan

Another option is to take out a personal loan from your bank. However, you might rack up a higher interest compared to using your credit card. Those with a good credit score can benefit from a bank loan because using their credit card could mean that they pay an extra 2-4 percent convenience fee, not to mention the astronomical interest rates that they have to pay off. Meanwhile, a bank loan’s biggest challenge is getting approved.

Borrow Money

They say that a man with many friends is never poor. And with interest rates through the roof and no guarantee you can pay everything back, your other option is to borrow money. Whether it’s from your friends or your relatives, you can ask them for a loan. There will be no interest rates, and depending on your history, they will be happy to help.

However, there may not be interest, but borrowing money, especially large amounts, can complicate a relationship. If you fail to pay them back promptly, they will grow to resent you. So, remember only to borrow money you can return.

Instalment Agreement

Don’t feel like risking your credit score or borrowing money? You can get in touch with the government and ask them if they will be willing to accept an instalment agreement on the tax payment. The catch is that you have to make the payments in full each month or face paying a late fee.

And if you fail to make payments anytime during the repayment period, you can meet another fine. With that said, going the instalment route may not be the best idea.

Borrow from your retirement fund

Starting a retirement fund as early as possible ensures that you will have enough money to yourself once you stop working. If you already have a substantial amount of your savings, you can take out a part of it and use it to clear your tax debt.

If it’s a personal account that you started yourself, you won’t have to pay any interest. But if it is an official retirement fund which you keep in the bank, you might have to pay it back promptly and also have to make a withdrawal fee since you are not allowed to take out money from this account.

Now that you have seen your options, which one do you think is best for your current lifestyle? Choose wisely and be on your way to tax freedom.

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