pay IRS with credit card?

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virgingorda
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pay IRS with credit card?

Post by virgingorda »

Yes, I know, sounds very un-boglehead, but let's say our tax still owed for 2014 ends up to be on the order of $50k. Would it be crazy to do a cash advance that the credit card company claims would be 0% interest through 9/16 to pay part of this? Or tap a 4% HELOC? Cash savings is currently around $45k; investments not including retirement and not including college is perhaps $800K, and no mortgage. We could sell appreciated stock but it would mean paying long term capital gains tax. The cc loan at 0% (or HELOC at 4%) could be paid off well in advance of the 18 months the company is offering from cash flow. Would using the HELOC let us deduct mortgage interest in 2015? Or am I not thinking straight about any of this?
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gasdoc
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Re: pay IRS with credit card?

Post by gasdoc »

I am not sure it is the right answer mathematically, but I would use the emergency fund to pay the tax bill, selling only the amount of stocks necessary to complete the tax payment. With the emergency fund depleted, you may end up having to sell more stocks eventually, but it can be delayed. Only as a last resort would I take the 0% interest loan- the loan companies know there is a good chance you will end up paying interest.
livesoft
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Re: pay IRS with credit card?

Post by livesoft »

I'd take the 0% interest loan (make sure it is no fee) since you have $845K to back it up anyways. The HELOC doesn't save you any money that I can see.

I don't have a credit card with a limit of $50K and if I did, then took out a loan, my credit score would drop 30 points like it did the last time I took a 0% interest NO FEE cash advance.
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wilpat
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Re: pay IRS with credit card?

Post by wilpat »

How much is the transfer fee for the 0% advance?
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Toons
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Re: pay IRS with credit card?

Post by Toons »

Use cash and a few grand in stock.Move On. :happy
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virgingorda
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Re: pay IRS with credit card?

Post by virgingorda »

Ah, good point about the fee! I don't know! I will definitely look into that. I have not done this before.
livesoft wrote:I'd take the 0% interest loan (make sure it is no fee) since you have $845K to back it up anyways. The HELOC doesn't save you any money that I can see.

I don't have a credit card with a limit of $50K and if I did, then took out a loan, my credit score would drop 30 points like it did the last time I took a 0% interest NO FEE cash advance.
This is probably a stupid question, but why does anyone care about credit score once you don't have much need for loans? Wouldn't it mean less stupid credit offers in the mail? I hate having to open and shred them. (I think the limit on the card is actually $40k. We always pay off the balance each month, though.)
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ogd
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Re: pay IRS with credit card?

Post by ogd »

virgingorda wrote:Ah, good point about the fee! I don't know! I will definitely look into that. I have not done this before.
I'll save you the trouble: it's 3% or $5, "whichever is higher". So the answer is no. Those offers go straight into the shredder over here.

The one time I've used a CC to pay any form of taxes was when I had a N month intro period of 0% APR and the cash rewards was just about level with the CC fee charged by the authority. That was a 0% interest loan, but it's rare for me because I don't churn my cards all that much.
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gasdoc
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Re: pay IRS with credit card?

Post by gasdoc »

virgingorda wrote:This is probably a stupid question, but why does anyone care about credit score once you don't have much need for loans?
This is absolutely NOT a stupid question! The sooner you realize the goal is to build wealth rather than credit worthiness, the rest will take care of itself. I have had my credit "frozen" for at least the last 10 years. It seems that the only people that want to see it are the cell phone companies, and I doubt you need a very high score for them! :beer
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virgingorda
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Re: pay IRS with credit card?

Post by virgingorda »

ogd wrote: I'll save you the trouble: it's 3% or $5, "whichever is higher". So the answer is no. Those offers go straight into the shredder over here.
It was over the phone, so I didn't ask about the fee. I had called to activate new cards and the offer was given to me. I didn't really pursue it, but it did seem too good to be true.
Geologist
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Re: pay IRS with credit card?

Post by Geologist »

I presume you plan to get cash via the advance and use the cash to pay off the tax bill because, as ogd says, there will be a fee for using a credit card to pay the IRS.
livesoft
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Re: pay IRS with credit card?

Post by livesoft »

There are no-fee no-interest offers from credit cards out there, so while one should assume there is a fee in the absence of knowledge, one should be able to easily find out if there really is a fee or not.

In my experience, once you accept such an offer, then you get more of them. I know I did this with my USAA credit card three times.
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virgingorda
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Re: pay IRS with credit card?

Post by virgingorda »

Geologist wrote:I presume you plan to get cash via the advance and use the cash to pay off the tax bill because, as ogd says, there will be a fee for using a credit card to pay the IRS.
yes, cash advance to checking account most likely.
livesoft wrote:There are no-fee no-interest offers from credit cards out there, so while one should assume there is a fee in the absence of knowledge, one should be able to easily find out if there really is a fee or not.
In my experience, once you accept such an offer, then you get more of them. I know I did this with my USAA credit card three times.
I will make no assumptions. The woman on the phone said the deal is good through March 28 so I have plenty of time to investigate, and to figure out if the tax will be as high as I expect. I did make estimated payments but now that W2s are in, I am worried about a shortfall.
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dodecahedron
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Re: pay IRS with credit card?

Post by dodecahedron »

virgingorda wrote:This is probably a stupid question, but why does anyone care about credit score once you don't have much need for loans?
Reasons to care about your credit record even if you don't need loans:

1) you may pay less for home/auto/liability insurance if you have a good credit score since some insurance companies figure good credit risks are generally safer to insure in general

2) some prospective employers may use credit record checks as part of the hiring process
HIinvestor
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Re: pay IRS with credit card?

Post by HIinvestor »

It's worth checking whether there are any fees with the offer. I had a few-free offer that I used to charge part of a new van with and 0% interest for CC months. I did pay minimum charge and the entire vakance before the interest started, so for je, it truly was FREE.

One other thing, I believe IRS does charge a % or flat fee (depending on the processor you choose) for charging your taxes. You should check that out as well and decide if that's a fee you're willing to shoulder. Also, I'm assuming your credit limit on the card is high enough? $50K is higher than the limit we have on any of our current cards.

http://www.irs.gov/uac/Pay-Taxes-by-Cre ... Debit-Card
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virgingorda
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Re: pay IRS with credit card?

Post by virgingorda »

dodecahedron wrote:
virgingorda wrote:This is probably a stupid question, but why does anyone care about credit score once you don't have much need for loans?
Reasons to care about your credit record even if you don't need loans:

1) you may pay less for home/auto/liability insurance if you have a good credit score since some insurance companies figure good credit risks are generally safer to insure in general

2) some prospective employers may use credit record checks as part of the hiring process
Thanks -- good to know. I thought there might be good reasons. It is not something I tend to think about much.
HIinvestor wrote:It's worth checking whether there are any fees with the offer. I had a few-free offer that I used to charge part of a new van with and 0% interest for CC months. I did pay minimum charge and the entire vakance before the interest started, so for je, it truly was FREE.

One other thing, I believe IRS does charge a % or flat fee (depending on the processor you choose) for charging your taxes. You should check that out as well and decide if that's a fee you're willing to shoulder. Also, I'm assuming your credit limit on the card is high enough? $50K is higher than the limit we have on any of our current cards.

http://www.irs.gov/uac/Pay-Taxes-by-Cre ... Debit-Card
Well, maybe mine is truly free also! I will definitely check. And the way I was going to do this was cash advance to regular checking account -> check to IRS. I don't think our limit is $50K either as stated above. I'd use cash savings for some of it. And hopefully it won't be $50k anyway.

Thanks again everyone!
cherijoh
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Re: pay IRS with credit card?

Post by cherijoh »

virgingorda wrote:Yes, I know, sounds very un-boglehead, but let's say our tax still owed for 2014 ends up to be on the order of $50k. Would it be crazy to do a cash advance that the credit card company claims would be 0% interest through 9/16 to pay part of this? Or tap a 4% HELOC? Cash savings is currently around $45k; investments not including retirement and not including college is perhaps $800K, and no mortgage. We could sell appreciated stock but it would mean paying long term capital gains tax. The cc loan at 0% (or HELOC at 4%) could be paid off well in advance of the 18 months the company is offering from cash flow. Would using the HELOC let us deduct mortgage interest in 2015? Or am I not thinking straight about any of this?
Are you sure your credit card is offering 0% interest on a cash advance? That sound odd, since that is where credit cards usually gouge you the most. Zero percent for balance transfers is much more common. But I don't think the IRS will take a credit card as payment for your tax bill. Also beware continuing to use that credit card during the interim. The rules on where repayments get applied are complex and could easily end up costing you money. I never carry a balance, but IIRC the minimum payment gets credited towards the current charges and the rest goes towards paying of the 0% balance.
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virgingorda
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Re: pay IRS with credit card?

Post by virgingorda »

cherijoh wrote:
virgingorda wrote:Yes, I know, sounds very un-boglehead, but let's say our tax still owed for 2014 ends up to be on the order of $50k. Would it be crazy to do a cash advance that the credit card company claims would be 0% interest through 9/16 to pay part of this? Or tap a 4% HELOC? Cash savings is currently around $45k; investments not including retirement and not including college is perhaps $800K, and no mortgage. We could sell appreciated stock but it would mean paying long term capital gains tax. The cc loan at 0% (or HELOC at 4%) could be paid off well in advance of the 18 months the company is offering from cash flow. Would using the HELOC let us deduct mortgage interest in 2015? Or am I not thinking straight about any of this?
Are you sure your credit card is offering 0% interest on a cash advance? That sound odd, since that is where credit cards usually gouge you the most. Zero percent for balance transfers is much more common. But I don't think the IRS will take a credit card as payment for your tax bill. Also beware continuing to use that credit card during the interim. The rules on where repayments get applied are complex and could easily end up costing you money. I never carry a balance, but IIRC the minimum payment gets credited towards the current charges and the rest goes towards paying of the 0% balance.
Many good responses! I never carry a balance either (noted above.) Sounds like occasionally people really do get 0%. As stated above, I do not plan to pay the IRS directly with a credit card, but using a personal check as usual (credit card cash advance to my checking account first.)
cherijoh
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Re: pay IRS with credit card?

Post by cherijoh »

virgingorda wrote:
cherijoh wrote:
virgingorda wrote:Yes, I know, sounds very un-boglehead, but let's say our tax still owed for 2014 ends up to be on the order of $50k. Would it be crazy to do a cash advance that the credit card company claims would be 0% interest through 9/16 to pay part of this? Or tap a 4% HELOC? Cash savings is currently around $45k; investments not including retirement and not including college is perhaps $800K, and no mortgage. We could sell appreciated stock but it would mean paying long term capital gains tax. The cc loan at 0% (or HELOC at 4%) could be paid off well in advance of the 18 months the company is offering from cash flow. Would using the HELOC let us deduct mortgage interest in 2015? Or am I not thinking straight about any of this?
Are you sure your credit card is offering 0% interest on a cash advance? That sound odd, since that is where credit cards usually gouge you the most. Zero percent for balance transfers is much more common. But I don't think the IRS will take a credit card as payment for your tax bill. Also beware continuing to use that credit card during the interim. The rules on where repayments get applied are complex and could easily end up costing you money. I never carry a balance, but IIRC the minimum payment gets credited towards the current charges and the rest goes towards paying of the 0% balance.
Many good responses! I never carry a balance either (noted above.) Sounds like occasionally people really do get 0%. As stated above, I do not plan to pay the IRS directly with a credit card, but using a personal check as usual (credit card cash advance to my checking account first.)
Yes as noted above, they can say 0% on interest, but cash advances usually do have an initial fee which is quite high. Depending on how quickly you could repay it, your HELOC might end up being less expensive.

BTW, if your bill is that big, are you going to have problems with underpayment penalties? Or did you meet one of the safe harbor rules?
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virgingorda
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Re: pay IRS with credit card?

Post by virgingorda »

cherijoh wrote: Yes as noted above, they can say 0% on interest, but cash advances usually do have an initial fee which is quite high. Depending on how quickly you could repay it, your HELOC might end up being less expensive.

BTW, if your bill is that big, are you going to have problems with underpayment penalties? Or did you meet one of the safe harbor rules?
Yes, I agree I should not write off the HELOC quite yet.

"Estimated tax safe harbor for higher income taxpayers. If your 2014 adjusted gross income was more than $150,000 ($75,000 if you are married filing a separate return), you must pay the smaller of 90% of your expected tax for 2015 or 110% of the tax shown on your 2014 return to avoid an estimated tax penalty." (http://www.irs.gov/publications/p17/ch04.html)

We have had big bills before and have never had to pay an underpayment penalty, so hopefully will be OK. I made estimated payments. Worst case penalty probably $400.
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virgingorda
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Re: pay IRS with credit card?

Post by virgingorda »

Well, I feel really stupid panicking for nothing. Turns out I did an excellent job estimating our estimated tax and we are getting a small refund! :D
(And today, I got some of those checks from my credit card company and indeed, there is a 4% fee! There is no free lunch after all.)
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