While many Americans look forward to income tax filing season as a source of a refund, others end up with a surprise tax bill. The reasons range from underpaid withholding to unexpected tax consequences of a life change or even the start of a new business venture. But the end result is the same: a big bill in October or April when you file taxes.
If you're facing this challenge, don't despair. A simple financial tool, the personal loan, can help you move forward in confidence. Here is a guide to getting it done.
1. Research Personal Loans
Personal loans generally don't require any collateral and you can get them from a large variety of sources. Start saving yourself money by researching your loan options — including local banks and credit unions, online loan providers, and national companies that specialize in personal loans.
Begin by using an online calculator or one provided by the lender to determine approximately how much time you need to comfortably pay the tax bill. Then, compare fees and rates among a few top lending options to find the lowest cost and most reasonable terms.
2. Pay Off the IRS
The IRS does offer payment terms for most taxpayers who come up short. There is, though, a minimum amount you'll need to pay each month and a limited time frame for the loan. You will also pay fees to initiate the payment plan — which will be higher if you don't use automatic withdrawal. Finally, if you are already paying into a plan from last year, you generally can't initiate a new one this year.
While the IRS payment plan does have its advantages, you may not want to be indebted to the IRS. It will likely seize any future refunds to pay the tax debt and has the right to terminate the payment agreement if you miss payments or if it feels that your financial situation has changed.
Avoid any potential further problems by using the loan proceeds to pay off the IRS at once. You will have more freedom to handle the debt as you'd prefer and over the time frame you need.
3. Pay the Loan Early
Now that you aren't worried about the IRS, come up with a plan to pay the loan off early. Redirect additional payments — such as employee bonuses, extra weeks' paychecks, or holiday gift money — to the loan's principal. Even small amounts will help you make unexpectedly encouraging progress and pay the debt off more easily.
A big tax bill doesn't have to derail your life or your finances. With a little research, you'll find the right loan option for your own circumstances and be able to diligently pay it off sooner than you thought possible. And then you can focus on avoiding any surprises for the future.
For more information on personal loans, contact a lender near you.