Unexpected tax bill? Avoid jeopardizing your Long-Term Plan

Tom King CFP, CLU, AEP is registered Principal of King Financial Partners at State College

The tax filing period is in full swing and many working Americans are already receiving their refunds — but what if you were expecting to overpay or receive a refund and have an account instead?

First, stay calm and explore by talking to your accountant. Have you included any discounts? Has anything changed since the deposit last year?

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

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

Actions to be taken

Explore a title-based credit line. With a securities-based credit line, also known as the SBL, you can pay the taxes you owe without touching on the investments you make. With an SBL, you will not have to sell any of your holdings and you will avoid interrupting your investment strategies as well as capital gains. An SBL can also help you leverage your non-retired pledged assets as collateral. The remaining SBLs are paid at your discretion, with a minimum monthly interest payment required – making it a flexible way to access liquidity without liquidating assets.

Consider using your own funds at home. A home equity loan can be a cheaper way to pay off than to sell securities that are part of your long-term investment plan. These types of loans can offer quick liquidity and flexibility to help you meet your tax obligations, with competitive interest rates. And you may be able to avoid capital gains taxes that could result from the sale of valued investments.

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

If possible, avoid…

An unfavorable offer in compromise. The IRS can negotiate a Compromise Offer (OIC) to help you pay your bill for less than you owe. However, keep in mind that there are related costs, including a deposit fee.

Payment with a high interest rate credit card. This type of debt can negatively affect your credit score and quickly increase commissions, making it more difficult to repay the principal. Although the IRS also charges interest (federal short-term interest rate plus 3%), it is much lower than most credit card companies.

Receiving money from retirement accounts. It is not a good idea to undermine a long-term plan by raising funds early. You will face penalties as well as additional taxes on the amount you deduct, which could mean that you will not have to pay as much money as you thought. And you will have even less to retire.

Plan in advance

If you’re finally paying taxes, talk to your tax and financial advisors about other ways you can pay the bill without disrupting your investment plan or running out of savings. If you expect to pay taxes again, you may also want to discuss withholding tax and investment savings strategies to reduce your liability next year and beyond.


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

Securities offered through Raymond James Financial Services, Inc., FINRA / SIPC member © 2021 Raymond James Financial Services, Inc., FINRA / SIPC member. Investment consulting services offered through 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 credit line (SBLC) may not be suitable for all investors. Financial advisors to Raymond James Associates, Inc. and Raymond James do not solicit or offer home mortgages and can not accept home mortgages or offer or negotiate terms of any such mortgages. Sources: Raymond James Insight and Commentary; Raymond James does not provide tax or legal services. Discuss these issues with the appropriate professional.

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