I recently did a preliminary calculation of my taxes for 2018 and discovered that I am going to owe the IRS about $16,000. I do not have this amount of money in reserve.
My question pertains to the best way to pay this amount. Options as I see them:
- Sell an asset to raise the money (such as a car)
- Put it on the credit card
- Withdraw from 401k to raise funds
- Use an IRS payment plan
Unfortunately, #1 isn't a great option (I need my car). So it's going to be something from 2-4:
- Credit card. My interest rate on purchases is 18.24% annually. Could work.
- Withdraw from 401k. Doing this would put me in the 24% income tax bracket, plus the 10% penalty on the total amount withdrawn, plus the state wants a piece. This amounts to about a 39% hit. This is a terrible idea.
- IRS payment plan - I read up a bit on this and couldn't get a good understanding of what the actual costs are. The annual interest rate is 3%, but there are fees and also a late payment penalty of 0.25% per month.