How many of you build, track and utilize credit card points for personal benefit? It’s a great tax strategy (credit card point redemption benefits are currently tax free), AND it’s an added bonus when you have to pay one of the most dreaded bills of the year.
No matter how you file your income tax return—by mailing a paper copy or electronically—you can pay your taxes using a major credit card or a debit card online. Individuals can make these payments 24 hours a day, seven days a week, using certain cards as long as they follow the proper procedure.
There are actually several advantages when turning to a credit card to pay your tax bill:
- Delay paying the actual cash for your taxes
- Hopefully get a lower interest rate than the IRS would give you if you were on a payment plan
- Avoid any penalties if you don’t have the cash and chose not to pay anything
- and of course airline mileage or certain reward programs include cash back cards
There are only a couple disadvantages, such as the convenience fee charged by service providers (both for credit and debit card transactions) is not deductible and of course paying the interest is no fun and not tax deductible either.
Also, keep in mind that redeeming airline miles isn’t taxable. This is exciting that you can earn point for taking tax deductible travel, and then even more miles/points by paying your taxes with a credit card. See related article here.
Two companies, Official Payments Corporation and Link2Gov Corporation, are authorized service providers for purposes of accepting credit cards, and debit cards from both electronic and paper filers. The companies have their own fee schedules and provide internet payment services. You can use these companies to charge taxes to an American Express, Discover Card, MasterCard, or VISA card or BillMeLater account or pay using a debit card. If you file early, you can still wait until April to make the online payment.
You can use the above credit card methods to pay any tax due on your Form 1040, 1040A, or 1040EZ; individual estimated taxes; installment payments; payments with extension of time to file (Form 4868); trust fund recovery penalty; and Form 5329 (IRA taxes).
Be aware that also some states accept credit card payments of state taxes. The federal and state payments are not combined.
Before you use any of these programs, make sure you do your research on the fees, as well as any other potential pros and cons. Maybe paying your taxes could actually give you a vacation when it’s all over.
Mark J. Kohler is a CPA, Attorney, Radio Show host and author of the new book “The Business Owner’s Guide to Financial Freedom – What Wall Street Isn’t Telling You”, and “The Tax and Legal Playbook- Game Changing Solutions For Your Small Business Questions”. He is also a partner at the law firm Kyler Kohler Ostermiller & Sorensen, LLP and the accounting firm K&E CPAs, LLP. For more information visit him at www.markjkohler.com.