Unexpected tax bill? Avoid compromising your long-term plan

Tom King CFP, CLU, AEP is a Registered Director of King Financial Partners at State College

Tax season is upon us and many working Americans are already receiving their refunds – but what if you expected to break even or receive a refund and instead face a invoice ?

First, stay calm and investigate by talking to your accountant. Have you included all deductions? Has anything changed since last year’s filing?

Second, start thinking strategically about how to pay what you owe, especially if your money is invested, earmarked for retirement, or tucked away in an emergency fund.

Finally, make plans now to include tax mitigation strategies in your financial plan for next year.

Actions to take

Explore a title-based line of credit. With a title line of credit, also known as an SBL, you can pay the taxes you owe without touching the investments you own. With an SBL, you won’t have to sell any of your holdings and you’ll avoid disrupting your investment strategies as well as capital gains. An SBL can also help you leverage non-retirement assets by pledging your portfolio as collateral. SBL balances are paid at your discretion, with only a minimum monthly interest payment required, making it a flexible way to access liquidity without liquidating assets.

Consider tapping into the equity in your home. A home equity loan can be a more cost-effective way to pay instead of selling securities that are part of your long-term investment plan. These types of loans can provide quick liquidity and flexibility to help you meet your tax obligations, at competitive interest rates. And you may be able to avoid capital gains taxes that may result from the sale of popular investments.

Carefully select investments that could be sold for additional cash. In some cases, selling securities to capture capital losses or rebalance a portfolio is a good idea. Consider stocks that could be harvested for capital losses or those that you can sell to help realign your portfolio with your long-term goals. Another possible benefit? Unused realized capital losses may be available to offset future tax bills. Remember that rebalancing may have tax consequences.

If possible, avoid…

An unfavorable offer in compromise. The IRS can negotiate an Offer in Compromise (OIC) to help you settle your bill for less than you owe. However, be aware that there are associated costs, including an application fee.

Pay with a high interest credit card. This type of debt can negatively impact your credit score and quickly rack up charges, making it more difficult to repay principal. Even though the IRS also charges interest (federal short-term rate plus 3%), it’s much lower than most credit card companies.

Take money from your retirement accounts. It’s not a good idea to undermine a long-term plan by withdrawing funds early. You’ll face penalties, as well as additional taxes on the amount you withdraw, which could mean you won’t have to pay your tax bill as much as you thought. And you will have even less for your retirement.

Plan ahead

If you end up having to pay taxes, talk to your tax and financial advisors about other ways to pay the bill without disrupting your investment plan or depleting your savings. If you expect to owe taxes again, you can also discuss the amount of your tax withholding as well as investment and tax-saving strategies to reduce your liability next year and beyond.


Tom King CFP®, CLU®, AEP® is a registered director of King Financial Partners (222 Blue Course Drive, State College, PA). King Financial is a team of accredited professionals specializing in retirement, investment management, wealth transfer and estate planning. Tom can be reached at [email protected] or (814) 234-3300.

Securities offered by Raymond James Financial Services, Inc., Member FINRA/SIPC.© 2021 Raymond James Financial Services, Inc., Member FINRA/SIPC. Investment advisory services provided by Raymond James Financial Services Advisors, Inc. King Financial Partners is not a registered broker/dealer and is independent of Raymond James Financial Services.

A securities-based line of credit (SBLC) may not be suitable for all investors. Raymond James Associates, Inc. and Raymond James financial advisors do not solicit or offer residential mortgage products and cannot accept any residential mortgage loan application or offer or negotiate the terms of any such loan. Sources: overview and commentary by Raymond James; Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional.


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