Five possible solutions to pay your tax bill
Borrowing against your portfolio could be an efficient way to raise the cash you need
Benjamin Franklin famously wrote that “Nothing can be said to be certain, except death and taxes.” While taxes are certainly unavoidable, you have an array of choices when it comes to paying any money you might have due. In the spirit of sound financial decision making, let’s explore some of your options and take a look at the benefits and potential drawbacks of each.1
1. Paying in cash
In a world where cash is king, paying in cash may be the simplest option. It’s fast, easy, and there are no exorbitant fees or expenses to worry about. However, if your tax bill is large enough, you may not have enough cash readily available. You may also be reluctant to drain your emergency reserves.
2. Selling investments or other assets
Depending on the type of asset, this approach may allow you to raise the funds you need fairly quickly without taking a loan. For example, cash proceeds from selling securities are typically available in your account within two business days. Keep in mind, however, that the sale of certain assets and securities may have significant tax consequences. It may also possibly disrupt your long-term investment strategy.2
3. Borrowing against your credit card
Assuming you have a high enough credit limit, taking a cash advance against your credit card may be a fast and easy solution. However, interest rates and additional fees could potentially be relatively high. And if you don’t pay off the balance right away, the interest expenses will continue to mount over time.
4. Taking out a personal loan
Using a short-term personal loan from a bank or other commercial lender may be an attractive option because you may quality for a lower interest rate than you’d pay with a credit card. Also, the application process is generally getting easier—especially at the host of emerging online lenders. Note, however, that origination fees could apply, and your interest rate may depend on your credit score, income, and a host of other factors.
5. Using a Line of Credit
This solution lets you quickly and easily access cash by borrowing against the assets in your E*TRADE Securities account.3 Interest rates are competitive, there are no hidden fees, and you can avoid disrupting your long-term investment strategy.4 Note that there are special risks and certain limitations as to how you can use the funds (for example, you may not use the funds to purchase or carry securities or pay down a margin loan), so be sure to carefully review the product benefits, risks, and disclosures before applying.
As you see, there are many solutions for meeting your tax obligations. To determine which payment option makes the most sense for you, be sure to consult with your tax or financial advisor.