If you can’t afford to pay your taxes with cash or you just want to earn some extra cash back or travel points, using a credit card to pay your taxes can be a smart financial idea. Many credit card companies are being very generous with their rewards programs in 2014, which makes paying your taxes with a credit card an even smarter idea. Here are the best reasons to use a credit card to pay your taxes:
If You Are Going to Be Late Paying
If you don’t think you can make the April 15 deadline to pay your taxes, you might be considering asking for an extension. The problem with getting an extension is that the IRS will charge you interest on what you owe for every day that you are late. Instead of giving away money to the IRS, you can look for a credit card that has a 0% intro APR for up to a year and a half. This way, you have more time to pay off your balance (the IRS only gives you six months), and you aren’t being charged extra interest to carry the balance.
If You Want to Earn Cash Back
If you know that you are going to have a large tax bill and already have the money to pay it off, putting it on a credit card first can help you rack up a bunch of cash back or bonus travel miles before you pay off the balance. In this case, it is smart to use a card that gives you the most cash back or bonus miles for everyday purchases, since your tax bill is not going to fall into specific categories that some card rewards programs require, like using your card for gas or groceries.
If You Need a Long-Term Payment Option
The IRS only gives you a six-month extension to pay off your taxes, which isn’t long enough for some. You can set up a payment plan with the IRS, but the interest rate on those plans can be high, especially if you owe a large sum. If you don’t think you can pay off your balance with a 0% intro APR period of a year or more, you might want to look at a credit card that has a long-term low APR, since you won’t be racking up as much interest as if you went on an IRS payment plan.
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