It's important to pay your taxes to avoid interest and penalties. But using a credit card can be costly as well. What's the best move for cash-strapped taxpayers this month?
In the following video, Dan Caplinger, The Motley Fool's director of investment planning, runs through the pros and cons of using a credit card. Dan notes that not paying the IRS incurs underpayment interest of 3% annually plus a 1/2% monthly failure-to-pay penalty. Yet Dan also notes that credit card payment fees range from 1.87% to 2.35% upfront, not including the interest charges you might have to pay on your card. As a result, Dan concludes that in some cases, not paying might actually cost less than using a credit card, but you have to be careful in navigating the IRS's ability to collect taxes.
Take advantage of this little-known tax "loophole"
Recent tax increases have affected nearly every American taxpayer. But with the right planning, you can take steps to take control of your taxes and potentially even lower your tax bill. In our brand-new special report "The IRS Is Daring You to Make This Investment Now!," you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.
Dan Caplinger and the Motley Fool have no position in any stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.