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Can You Pay Taxes with a Credit Card?

With tax season behind us, the next big worry is paying off those remaining tax bills. If you’re considering your options, paying your taxes with a credit card might have crossed your mind. It’s an alternative to IRS payment plans and could even offer some tempting rewards if your card has the right perks.

But before you swipe, it’s important to weigh the pros and cons. Depending on your tax bill and your credit card’s terms, this decision could either save you some stress or cost you more in the long run.

💵 Processing Fees

Since the IRS can’t accept credit card payments directly, they work with three approved payment processors. Currently, the processor with the lowest fee is pay1040.com, charging 1.87% of your balance, with a minimum fee of $2.59. So, if you owe $2,000 in taxes, you’ll be charged a total of $2,037.40.

Remember, these fees get steeper the larger your outstanding balance, and you’ll need to pay them on top of any interest. If you go with an IRS payment plan and pay by direct debit or check, you’ll only owe the IRS interest rate and any applicable penalties, with no processing fees.

📌 Interest Rates and Balance Transfers

Interest rates vary by credit card, but the average is about 15.07%. According to the IRS, the rate for overpayments and underpayments is currently 6% per year, compounded daily.

If you plan to pay your balance off over time, you’ll likely pay more interest with a credit card, even if it’s simpler to calculate than the IRS interest rates, which change frequently. However, if you open a new credit card with a balance transfer offer and have good credit, you could get several months to a year to pay off your balance at a 0% interest rate, which can save you money and buy you some time. But if you miss payments or your credit isn’t great, this might not be an option for you.

💡 Credit Card Rewards

Credit card rewards, like cash rebates and frequent flyer miles, often make the extra fees and interest tempting when paying your taxes by credit card. Why not earn a free vacation while paying your taxes?

However, financial experts estimate that most credit card rewards only net you about 1% back on what you purchase. It’s worth sitting down and doing the math on how much you could save by sticking with the IRS interest rates and avoiding processing fees—you might be able to fund that vacation out of pocket instead. Unless you plan to pay off your entire balance immediately and the rewards are worth the fees, using a credit card for your taxes might not be the best financial move.

📃Tax Bills and Your Credit Report

If you need extra time to pay your taxes, an IRS installment or short-term payment agreement is usually a better option, as these don’t appear on your credit report. However, carrying a balance will appear once you shift the responsibility from the IRS to your credit card company.

In addition to affecting your available credit, it also impacts your credit utilization score based on how much of your available credit is being used.

If you’re looking for housing, more credit, or other situations that involve a credit check, you’ll want to avoid paying your taxes with a credit card.

✅ Weigh the Risks and Benefits of Paying Your Taxes by Credit Card

Ultimately, the decision to use a credit card to pay your taxes is a personal one. If you’re planning to take a longer-term approach, an IRS installment agreement is likely to cost you less both upfront and in the long run.

Need Help?

Not sure which payment option suits your situation best? Let’s connect and figure out the smartest way to handle your tax bill—without sacrificing your financial goals.

What Is The Penalty For Not Filing Taxes? Penalties and More in 2024

We’ve all heard the saying about death and taxes, but it’s surprising how many people still skip filing their tax returns. If you’re one of them, thinking you can fly under the radar, it’s time to rethink that strategy. Even if you can’t pay your taxes right now, filing a return is non-negotiable. Skipping this step can set off a chain reaction of unpleasant consequences that you definitely want to avoid.

Despite what you may have heard about the IRS being too busy to notice, the reality is quite different. The IRS has a job to do, and not filing your tax return could come back to haunt you in more ways than one. Let’s break down the key tax filing rules and what happens if you ignore them.

💡 Most People Are Required to File Tax Returns

If your income is less than the standard deduction and you don’t owe self-employment taxes, ACA penalties, or qualify for certain credits, you might think you don’t have to file a tax return. But with health and family assistance tied to tax returns, the number of people not required to file is shrinking. So, nearly all individuals, estates, and trusts need to file a return, and they may have to pay taxes. These are two different things, and there are penalties involved with ignoring either one. Even if you don’t have the money to pay the tax you owe, you’re better off filing a return rather than skipping the process. Here’s why:

The IRS imposes a fee for not paying your taxes and a separate fee for not filing. The larger penalty is for not filing—it’s 4.5% per month, compared to just 0.5% for not paying, and that fee gets charged every single month. You could end up paying up to 22.5% for failing to file and 25% for not paying (plus interest on unpaid taxes, which accrues from the return’s due date until you pay). The bottom line is that whether you can pay or not, you’ll save yourself big fees by submitting the required paperwork.

In addition to incurring fees, consider the actions the IRS takes when they don’t receive a tax return from you. The process involves preparing a substitute return, which will be completed without consideration of tax advantages, deductions, or write-offs. This leads to a higher amount owed than if you had prepared and filed your return yourself.

The IRS is limited by a rule known as the “statute of limitations,” which gives them just three years from the date you file to perform an audit. The three-year clock starts when you file a return, so the sooner you get the paperwork in, the sooner your risk of being audited expires. That statute also applies to any refund you might have coming—after three years from the date of filing, you forfeit any refund. Beyond the audit, if the IRS lets ten years from your filing date go by without pursuing the taxes you owe, they lose their ability to collect those taxes, penalties, or interest. The same is true for your ability to include your tax debt, interest, or penalty debt in a Chapter 7 Bankruptcy discharge, which is based on the date of your tax filing (generally two to four years after you file your tax return).

❓ What If You Can’t Pay Your Taxes?

What happens if you file your return without submitting the money you owe?

Once the IRS processes a return that isn’t accompanied by payment, or discovers a taxpayer’s failure to file and pay taxes, they issue a Notice of Tax Due and Demand for Payment detailing how much you owe in taxes, interest, and penalties. You can submit payment via cash, money order, credit card, check, or electronic funds transfer, and the sooner you pay, the better, as penalties and interest will continue to accumulate. If you don’t have the funds available, it’s better to contact the IRS and discuss your problem with them than to ignore the notification. Options for resolving your payment issue include:

✅ Allowing a temporary delay: This is generally offered after a review of your situation, during which time the agency may file a Notice of Federal Tax Lien. This document allows the government to place a claim on what you owe until you can pay.
✅ Setting up an installment agreement: This allows you to make smaller monthly payments based on what you can afford.
✅ Settling through an Offer in Compromise: This is an agreement that’s possible only after all other options have been exhausted, allowing you to pay a lower amount than what’s owed. It’s issued after a complete review of your financial situation and addresses penalties and interest along with the original tax amount. Reaching an Offer in Compromise requires filing an application that costs $150.

It’s important to remember that if you receive a tax bill you think is incorrect, ignoring it is just as big a mistake as not filing a return. Instead, take positive action by contacting your local IRS office and bringing all pertinent documentation to prove your case.

Need Help?

Beyond the financial penalties, failing to file a tax return when you owe money can lead to more severe consequences, including potential criminal charges and a whole lot of stress. Stay on top of the tax filing rules, communicate with the IRS, and save yourself a world of trouble—and money.

Don’t let tax deadlines and penalties get the best of you. Reach out to our team today to help you file back taxes and stay up to date with current tax filing rules and deadlines in 2024. Let’s tackle this together and keep you in the IRS’s good graces!

Egg Donation & Taxes: What Egg Donors Need to Know in 2024

Egg donation is a generous act that can help families achieve their dreams of parenthood. However, if you’re considering becoming an egg donor, it’s important to understand the financial implications—especially when it comes to taxes.

Whether you’re new to the process or already familiar, this guide will walk you through what you need to know about the taxation of egg donor compensation in 2024.

❓ Can you deduct egg donor fees on taxes?

Yes, according to the Internal Revenue Code Section 213(a), the cost of donor eggs is deductible as medical expenses. The Code states, “Section 213(a) allows a deduction for uncompensated expenses for medical care of an individual, his spouse or a dependent to the extent the expenses exceed 7.5 percent of adjusted gross income.”

❓ How much can an egg donor deduct from taxes?

According to the Pacific Fertility Center, “The fee paid to egg donors for completing a donor cycle is $10,000. If you have any questions regarding the fee paid to egg donors, please do not hesitate to contact us. There are many reasons for a woman to choose to become an egg donor. For many egg donors, the fee paid is not the main reason for egg donation. Rather, the satisfaction of participating in the miracle of life is the greatest compensation paid to egg donors.”

❓ Is the compensation received taxable?

Yes. Compensation for egg donation is considered taxable income by the Internal Revenue Service and the egg donor agency is obligated to report this income to the IRS. You will receive a Form 1099 at the beginning of the year after your egg donation so you can report your earnings and pay the appropriate taxes.

Depending on your tax bracket, that is how much you will get taxed on your income from this donation. For example, if you got paid $10,000 and were taxed at the self-employment rate of 30.3%, you only make $6,970.00.

Planning on egg donation in 2024?

Whether you’re a first-time egg donor or a seasoned pro, navigating the tax implications can be tricky. Understanding how much you’ll owe and when can make a significant difference in your financial planning. If you have questions about your specific situation, don’t hesitate to reach out to us—we’re here to help.

Give us a call today—we’ll help you make sure that your generosity doesn’t come with any unwelcome surprises at tax time.

What if I can’t pay my taxes?

It’s a common problem: You want to file your taxes on time, but you already know you’ll owe more than you can afford right now. So, you’re tempted to delay filing, thinking the IRS won’t come knocking until they have that latest tax return in hand.

Spoiler alert: You should still file your taxes, even if your wallet’s feeling a little light.

Am I Required to File a Tax Return?

📌 The Gross Income Filing Requirement
You may want to file a tax return, but you are not actually required to. Generally, the gross income filing requirement is based on the standard deduction plus personal exemption for your filing status. The IRS has a tool to determine if you are required to file a tax return based on your income alone. Notably, taxpayers who are married and filing separately have a gross income filing requirement.

Other situations in which you must file a tax return Regardless of the total reported income on your tax return, there are other situations in which you must file a tax return.

📌 Self-employment
If you owe self-employment tax on net self-employment income of \$400 or more, you are obligated to file a tax return. It’s easy to go past this amount if you drive for Lyft or Uber, are giving freelance work a try, or have any other form of self-employment income that nets out to $400 or more after your deductible expenses.

📌 Affordable Care Act
You also must file a tax return if you receive Affordable Care Act subsidies for your health insurance and if you have any recapture payments such as the First-Time Homebuyer Credit. Any early distributions taken against an IRA or 401(k) also require you to file a tax return even if you had no other income, and the same is true if you reach age 70 1/2 during the tax year and were required to make the required minimum distributions (RMDs) from your retirement plan, but did not actually start these payments yet.

📌 To get a tax refund
Even if you are not mandated to file a tax return, you may still want to file one to get a tax refund. If you aren’t due a tax refund, it’s still a good idea to have a tax return on file with the IRS. Tax returns are commonly requested when applying for a lease or mortgage, or to show proof of income and demonstrate the ability (or inability) to pay for higher education and other important aspects of life that may arise.

📌 Filing a Tax Return vs. Paying Your Actual Tax Bill
A common misconception is that you need to pay all taxes due when you file your tax return. While it’s prudent to do so, you are not actually required to. Filing your actual tax return is still the very first thing you should do no matter how much you owe, even if you’re filing it late. Doing so will prevent steep penalties from being incurred if you were required to file a tax return. Additionally, suppose you put off filing your tax return for too long. In that case, the IRS can file a substitute return that won’t apply for any tax benefits and will make their assessment against you larger than it actually should be.

📌 Even if you can’t afford to pay you should still file
Even if you can’t afford to put anything toward your tax bill right now, the very least you should do is file your tax return before the deadline every year. If you want to file your taxes despite being unable to pay your bill right now, you can still do so.

📌 Receiving an Automated Tax Bill From the IRS
If you cannot pay your taxes, you should still file a tax return without including payment. You can also include a partial payment of any size, even if it’s a small amount like $20. The IRS will not issue a judgment that quickly after you file your return, and even a small payment can help you save some money on interest.

The IRS will send an automated bill by mail if you do not pay your entire tax bill upon filing your return. You can pay your balance before the bill arrives if you have the money to do so, but getting the bill in the mail doesn’t mean you are facing a lien against your bank account.

Interest will accrue on the unpaid balance as long as it goes unpaid, but owing money is a separate concept from filing your tax return on time, so you can and should file even if you can’t pay.

Need Help?

If your tax bill is giving you sleepless nights, let’s work together to find a solution. Whether it’s setting up an IRS payment plan or exploring IRS installment options, we’re here to help you navigate 2024 with confidence. Reach out today—peace of mind is just a conversation away.

Social Security Is Taxable? How to Minimize Taxes in 2024

How much (if any) of your Social Security benefits are taxable depends on several key factors. The following information will help you understand the taxability of your Social Security benefits.

Taxable Social Security Benefits

For this discussion, the term “Social Security benefits” refers to the gross amount of benefits you receive (i.e., the amount before any reductions due to payments withheld for Medicare premiums). For tax purposes, Social Security benefits are treated the same regardless of whether the benefits are paid due to disability, retirement, or reaching the eligibility age. Supplemental Security Income benefits are not included in these computations because they are not taxable under any circumstance.

The taxability of your Social Security benefits depends on your total income and marital status:

📌 If Social Security is your only source of income, it is generally not taxable.
📌 On the other hand, if you have other significant income, up to 85% of your Social Security benefits may be taxable.
📌 If you are married and filing separately, and you lived with your spouse at any time during the year, 85% of your Social Security benefits are taxable—regardless of your income. This rule prevents married taxpayers who live together from filing separately to reduce the income on each return and thus reduce the amount of Social Security income that is subject to tax.

💡 The Formula

The following quick computation can determine if some of your benefits are taxable: Add half of your total Social Security benefits to your total other income, including any tax-exempt interest and certain other exclusions from income. Then, compare this total to the base amount used for your filing status. If the total exceeds the base amount, some of your benefits may be taxable.

💵 Income Exclusions

These exclusions include interest from qualified U.S. savings bonds (used for education expenses), employer-provided adoption benefits, foreign-earned income or foreign housing income, and income earned by bona fide residents of American Samoa or Puerto Rico.

When taxpayers can defer their non-Social Security income from one year to another, such as by delaying individual retirement account (IRA) distributions, they may be able to plan their income to eliminate or minimize the tax on their Social Security benefits in a given year. However, the required minimum distribution (RMD) rules for IRAs and other retirement plans must be taken into account.

Individuals with substantial IRAs who either aren’t required to make withdrawals or are making post-age 70.5 RMDs but are not withdrawing enough to reach the Social Security tax threshold may be missing an opportunity for tax-free withdrawals. Everyone’s circumstances are different, and what works for one person may not work for another.

Need Help?

Want to ensure you’re not overpaying on your Social Security benefits in 2024? Reach out today for a personalized tax strategy session tailored to your unique situation. Let’s make sure you’re getting the most out of your hard-earned benefits.

Mid-Year Tax Checkup : Would it benefit you?

A mid-year tax check-up isn’t just for procrastinators—it’s for anyone who wants to make sure they’re not leaving money on the table. If you’re already starting to worry about taxes, don’t wait until the last minute. Taking action now could help you uncover opportunities to lower your tax bill and avoid penalties.

💡 Events That Could Impact Your Taxes

The following are some events that can affect your tax return; you may need to take steps to mitigate their impact and avoid unpleasant surprises after it is too late to address them.

Your Family Status Could Impact Your Taxes

❓Did you get married, get divorced, or become widowed?
❓Are you paying college tuition for yourself, your spouse, or your dependent(s)?
❓Did you welcome a new child into your family? Time to consider a tax-advantaged educational savings plan!

Change in Your Work Status Could Impact Your Taxes

❓ Did you change jobs or has your spouse started working?
❓Did you retire this year?
❓If you are an employee that incurs job-related expenses that aren’t deductible for years 2018 through 2025, have you arranged with your employer to participate in an accountable reimbursement plan for these expenses?

Changes In Income and Investments Could Impact Your Taxes

❓Did you have a substantial increase or decrease in income?
❓Did you have a substantial gain from the sale of stocks or bonds?
❓Are you considering an investment in a Qualified Opportunity Fund to defer tax on capital gains?
❓Are you taking full advantage of retirement savings plans?
❓Were you the beneficiary of an inheritance this year?
❓Are you on track to withdraw the required amount from your IRA (age 70-1/2 or older)?
❓Are you taking advantage of the IRA-to-charity transfers (age 70-1/2 or older)?
❓Do you have substantial investment income or gains from the sale of investment assets? If so, you may be hit with the 3.8% surtax on net investment income and need to adjust your advance tax payments.
❓Did you make any unplanned withdrawals from an IRA or pension plan?
❓Did you purchase your health insurance through a government insurance marketplace and qualify for an insurance premium subsidy? If your income subsequently increases, you may need to be prepared to repay some portion of the subsidy.

Real Estate Could Impact Your Taxes

❓Did you buy or sell a rental?
❓Did you start, acquire, or sell a business?
❓Did you buy or sell a home?
❓Did you refinance your home or take out a second home mortgage this year?
❓Did you, or are you planning to, make energy-efficiency improvements to your main home or install a solar system for your main or second home this year?

Changes in Your Business Could Impact Your Taxes

❓Have you made any significant equipment purchases for your business?
❓Are you planning to purchase a new business vehicle and dispose of the old one?
❓Are your cash and non-cash charitable contributions adequately documented?
❓If your expenses eligible for itemizing are less than the standard deduction, have you considered bunching charitable contributions so you can itemize this year and then use the standard deduction next year?
❓If you are a business owner, do you need to change how the business is organized to take full advantage of the 20% of qualified business income deduction?

Are You Keeping Up with Tax Compliance?

❓Are you keeping up with your estimated tax payments or do they need adjusting?
❓Have you stayed abreast of every new tax law change?

Don't Wait Until It's Too Late

If you anticipate or have already encountered any of the above events or conditions, it may be appropriate to schedule a mid-year tax check-up and consult with us—preferably before any of the events listed, and definitely before the end of the year.

Get ahead of the game—schedule your personalized mid-year tax check-up today and stay on top of your 2024 tax strategy!