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William Ellis, CPA
William Ellis, CPA, CPA
Category: Tax
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Experience:  Over 15 years of experience in public accounting
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Should I pay my taxes through taking out a personal loan or

Resolved Question:

Should I pay my taxes through taking out a personal loan or withdrawing from my IRA
Submitted: 2 years ago.
Category: Tax
Expert:  Tax.appeal.168 replied 2 years ago.
Hello, THANK YOU for choosing Just Answer. My goal is to help make your life...a little...LESS taxing.

Unless you simply just want to pay all the taxes owed at once, you can request to be put on an installment agreement payment plan. Doing this will allow you to pay over time and not be hit with possible early withdrawal penalties and being taxed on the money as ordinary income that you withdraw from an IRA. As far as taking a personal loan, you will have the interest to pay on it. Of course being put on an installment agreement, you will continue to accrue interest and penalties on the unpaid balance. If you would like more information on installment agreements, let me know.

So to answer your question, between the two, a personal loan and IRA withdrawal, I would say a personal loan. With it, in addition to the principal, you only have the interest to deal with, whereas with an IRA withdrawal, there is a possible 10% early withdrawal fee, if you are not 59-1/2 years old, and the inclusion of the withdrawal amount with your other income, possibly moving you to a higher tax bracket.
Expert:  William Ellis, CPA replied 2 years ago.
Hello and thank you for allowing us at Just Answer to assist you. If you have some of the money now or will before April 17, you can file an extension and pay what you can with it. This will give you until October to pay the balance. There will be some interest due on the unpaid balance, but that's better and easier than the two options you are proposing.

You can also make periodic payments between April and October without formally entering into an installment agreement. If this isn't an option for you, I would suggest you use a home equity loan to pay the tax balance.

Thanks,
Bill
Customer: replied 2 years ago.

Thank you for your quick reply! I would like to gie you a little more detail in hopes to clarify. Currnetly I will get 12% on the personal loan which is significantly lower than my tax bracket. I am above the age of 591/2 and will not incur a penalty on the withdrawal. If the installment agreement isnt an option, then go with the 12% loan or home equity?

Only if the home equity loan is below 12%?

Thank you for your assistance!

Expert:  William Ellis, CPA replied 2 years ago.
I would definitely go with the heloc. The rate should be a lot lower than 12%, the proceeds will not be taxable, and the interest is tax deductible if you are itemizing.

Thanks,
Bill
William Ellis, CPA, CPA
Category: Tax
Satisfied Customers: 296
Experience: Over 15 years of experience in public accounting
William Ellis, CPA and other Tax Specialists are ready to help you

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