Should You Pay Taxes with a Credit Card?

pay taxes with a credit card

You can pay your taxes with a credit card. Should you?

Every single year when I do my income taxes, I think about the things that I should do differently. For one thing, I always buy tax software. However, I could use the IRS eFile tool for free. I’m a creature of habit and making the switch challenges me. Nevertheless, it would be a financially smart thing to do.

I also typically pay taxes with a credit card. I’m aware that it’s doesn’t make the most financial sense. I do it anyway. That’s something I really need to look at it if I truly want to stick to my frugal living goals.

It’s Convenient to Pay Taxes with a Credit Card

Sometimes I pay a little bit more for convenience. That’s part of frugal living. I’m not trying to get the cheapest thing all of the time. I’m just trying to “trim the fat” to make sure that where I spend money is where it makes sense to do so. Sometimes convenience makes sense.

It’s definitely convenient to pay taxes with a credit card. I see what I owe. I enter the credit card information. It’s all done. I don’t have to worry about whether or not I have enough money in the bank to cover it. If I don’t, then I’ll move money around later to pay that card off. You can’t do that if you pay with a check; you have to have the money right then and there.

I Like My Credit Card Rewards

I have a good cash back credit card. My rewards accrue all throughout the year. I don’t touch them. Then, come December, I have a nice chunk of cash back money that I can use. December is a tough month financially for almost everyone. I also have several big annual bills that come due around then. Plus, as a freelancer, it’s almost always my slowest income month. Therefore, I love using those rewards.

When I pay taxes on a credit card, I get a nice bit of cash back. I don’t need it in the spring, but I’m really happy that it’s there come December. Therefore, I do like that aspect of paying taxes with a credit card.

The Rewards Don’t Outweigh the Fees

Here’s the thing, though. If you pay taxes with a credit card, then you’re charged a fee. You can’t pay the IRS directly with a credit card, so you have to use a processing service. The fee varies depending on the service you use. According to the IRS, the fee is sometimes deductible. However, that’s not always the case.

In my experience, the fee almost always costs more than the rewards I get back on my credit card. If you have an excellent cash back card then you might still get a little extra money. At the very least, it might even out. However, if you’re trying to pay with a credit card just to get cash back, then you should be aware that you probably aren’t doing yourself any financial benefit.

If you’re using a cash back rewards card, try to use one that’s got at least 3% cash back. Moreover, check with the processing service to see if the fees differ depending on the card that you use. For example, the fee is sometimes higher for American Express, so you might want to pay with a different card to keep costs down.

If You Don’t Pay the Credit Card Immediately, Then You Really Pay

It isn’t cheap to use your credit card. I usually pay my balance in full each month. Therefore, I don’t pay a lot of money in interest. However, if something goes awry, those interest charges can add up fast. If you do pay your taxes with a credit card, make sure that you don’t rack up a bunch of interest fees by failing to pay that card balance off quickly.

You can set up a payment plan with the IRS. Therefore, if you don’t have the money to pay your taxes right now, then you shouldn’t go straight to a credit card. Save money by working directly with the IRS instead, where the fees will be considerably lower.

Read More:

2018 Tax Changes: What You Need to Know Before You File

2018 tax changes

There are some important 2018 tax changes. If you haven’t filed your taxes, yet, then make sure that you know about these changes. In some instances, adapting to the changes might save you money. Everyone wants to get the most they can back from their tax refund so don’t let the changes mess that up for you.

2018 Tax Changes Come From Tax Reform Bill

These 2018 tax changes are coming as a result of the Tax Reform Bill. It is better known as the Tax Cuts and Jobs Act (TCJA). This bill passed in late 2017. However, the changes didn’t go into effect right away. That’s why you didn’t notice it last year when you filed your 2017 taxes.

It’s time now for those changes to go into effect, though, so it’s important to review the bill. There are changes that impact individuals, businesses, tax-exempt entities, and governments. However, we’ll only be looking at the 2018 tax changes for individuals in this article.

Overall, the Changes Should Make Filing Taxes Easier

One of the biggest changes is that the standard deduction has been expanded. Therefore, people who previously took itemized deductions may now be able to get as much (or more) money back just using the standard deduction. As a result, this simplifies taxes.

Many other deductions have been taken away. For example, you can no longer take a deduction for job searches or moving expenses. Therefore, you’ll probably benefit from just taking the standard deduction.

That said, if you do your own taxes, you may find that you need to figure out your itemized deductions first. That’s the only sure way to calculate whether you get more back from the standard deduction or not. Therefore, it might not save you as much time as it should.

If you want to save time and are willing to take the chance that you may or may not save money, then just take the standard deduction. In most cases, it’ll be the right thing to do. The standard deduction has almost doubled, which means that most people won’t save money with itemized deductions.

On the other hand, these 2018 tax changes are designed to last until at least 2025. Therefore, you might want to do the math this year, see if the standard deduction truly makes sense for you, then use that information when filing in future years.

The Changes Benefit Low and Mid-Income Filers

The people who benefit the most from these changes are those who are low-income or middle-income. They are most likely to get more back from the new standard deduction. Tax Foundation reports that the use of itemized deductions will drop more than 70% for people with an income between $10,000 and $50,000. Furthermore, it will drop at least 63% for people earning between $50,000 and $200,000. Therefore, if you earn less than $200,000 then chances are that you benefit from the new standard deduction.

Additional 2018 Tax Changes

Here are some other important things to know:

  • Fewer people will need to pay the Alternative Minimum Tax Liability.
  • The maximum credit for the Child Tax Credit has increased so it pays to have kids.
  • Furthermore, there’s a new additional credit for other types of dependents.
  • Tax brackets have changed, generally lowering marginal tax rates.
  • If you are self-employed or a small business owner, there are additional changes to learn about.

There’s one more important thing to note. Due to the 2018 tax changes, many people had less money taken out of their paychecks this year than in years past. If that’s true for you, then your refund will likely be smaller than years past as well. Even though you may pay less in taxes, you get less back because you paid in less.

Read More:

Should We Tax Robots?

tax robots

Should we tax robots?

The question sounds a little bit absurd. After all, a robot isn’t a person. Therefore, it doesn’t file taxes. Therefore, charging robots an income tax seems silly.

Moreover, it’s complicated. Your vacuum cleaner might be a robot. However, you obviously wouldn’t tax it, right? So where would we even draw the line?

Despite how silly it might sound, an argument can be made that we should tax robots. As more and more jobs go to robots, the country could benefit from just that move.

The Main Argument To Tax Robots

Computers are getting increasingly smarter. They are also replacing more and more jobs. As automation increases across many diverse industries, some people are starting to argue that it’s financially sensible to tax automation.

The main reason to tax robots is so that the government gets that money. Theoretically, at least, they spend it on things that we as a society need. Currently, the US government collects about $1.5 trillion dollars through income taxes. They collect another $1 trillion from payroll taxes. If the jobs go to the robots, then the amount goes down, unless we tax robots that are taking those jobs.

If people don’t find new jobs to replace the ones taken over by robots, then they will need to rely on the government even more. If we don’t tax automation, then there will be less money for the government to provide for those needs.

Robots Aren’t Necessarily Productive

There’s another reason that we should tax robots. Currently, untaxed robots may actually decrease business productivity. However, there are incentives to automation, so many businesses opt to use robots even though it might not make the most sense in terms of efficiency. If we tax robots, then the businesses have to look more carefully at why they are automating and whether or not it makes the most sense.

In other words, using robots should increase productivity in a business. However, that’s often not the case. However, since it saves the company money, a business might automate anyway.

Companies can avoid taxes and other costs if they get rid of employees. A robot costs less than a human to do the same job. However, if we tax robots, then we close the gap between those costs. If the human costs about the same as the robot but is more productive then the company will likely opt for the human.

At the moment, it’s more cost-effective for many companies to use robots. In fact, there are many different types of subsidies that encourage businesses to fire humans in order to hire robots. It benefits the business, but may not benefit society overall. Taking the robots would level the playing field, so to speak, which should be better for everyone.

Will We Tax Robots?

The truth is that we won’t necessarily charge robots taxes anytime in the near future. While it’s been done to some extent in other countries, such as South Korea, it’s a complicated process. Defining what a robot is and determining how to tax it are complex issues.

However, it would be possible to make changes to the subsidies. In other words, while we might not tax robots, we certainly don’t have to offer tax incentives for companies to have robots.

Moreover, the government could make other tax changes that even things out. For example, they might alter the way that companies are allowed to report depreciation of robots. Alternatively, they might have to finance the payroll taxes of employees whose jobs are eliminated in favor of using robots. Only time will tell how this will play out.

What do you think – should we tax robots?

Read More:

Source: New York Times