Many progressive business owners are paying taxes easily and quickly with a credit card to avoid paying interest and fees, and some are even profiting from doing so.
For some, paying taxes can cause poor cash flow especially if taxes are due during a slow time of year. Or worse, there simply many not be cash available to pay the tax. Traditionally, businesses can pay taxes due to the IRS late, but there are consequences:
- The monthly late fee is 1 percent of the balance due, $10 on a $1,000 tax balance for example.
- You can set up a payment plan with the IRS for a one-time fee of up to $105 plus monthly interest.
While in the past paying late has only downside, many forward thinking business owners are taking advantage of a new opportunity: Paying taxes by credit card or debit card.
Benefits of Paying Taxes by Credit Card or Debit Card
- Earn valuable rewards when you use many credit cards.
- Enjoy some free float on your tax payment — You’ll have more time to pay your tax bill without filing extra forms.
- Qualify for a credit card bonus — Some travel rewards cards have especially high minimum spending requirements for earning a sign-up bonus.
- Avoid interest If you can take advantage of a credit card with a 0% introductory rate on purchases and can pay off the credit card balance before the introductory period ends.
Drawbacks of Using a Credit Card to Pay Your Taxes
If charging taxes to your credit card will make you unable to pay your statement balance in full, then you may strongly consider not doing it. Instead, consult your accountant or tax adviser about creating a payment plan with the IRS, which will offer lower interest rates than the standard rate of nearly any credit card.This year it may be better for you to owe on your taxes rather than receive a refund because if you owe, you may be able to benefit from paying your taxes with a credit card. While few people enjoy paying taxes, many business owners are taking the bite out of paying taxes by earning cash back, miles, and enjoying some free float just for paying their taxes.