There Are Three common Ways to Pay Taxes. Here’s How to Consider What May Be Right for You
Taxes area certainty, as we know.
Less certain: the best way to pay them.
Should you pay taxes with a line of credit?
A portfolio line of credit – a flexible, revolving loan you can draw upon as needed – can be a practical way to access liquidity without having to sell your investments. By using your marketable securities portfolio as collateral, you can generally borrow funds quickly, often at compelling rates. This approach allows you to manage short-term needs – paying taxes is one example –while keeping your investments intact for future potential growth or other opportunities.
Borrowing on a line of credit would change your overarching financial picture and that requires prudent management. Of course, using a line of credit isn’t one-size-fits-all, and borrowing without intention could increase your financial risk. Your team can help you understand how to carefully consider the implications and structure your borrowing with your desired outcomes in mind.
Should you pay taxes by selling securities?
Selling investments to pay taxes may seem like a straightforward option. It is a direct way to generate funds. However, here are some things to keep in mind.
- Considerations before you sell: Selling assets that have appreciated can trigger capital gains taxes, increasing your tax bill in the future. You may have to sell your most liquid investments. That could pull your portfolio off track, potentially leading to unintended consequences.
- Considerations when using a portfolio line of credit: Paying taxes with cash may be a prudent move—if you have a thoughtful liquidity strategy. Knowing how much cash you truly need helps you see what’s “excess” and available for obligations including taxes.
Using cash keeps your investment portfolio intact. If you have an appropriately sized liquidity bucket to support your needs, including tax payments, paying taxes with cash could be efficient and straightforward.
Without a clear liquidity plan, you risk reducing your financial flexibility.
Conclusion: The power of choice
Whether you use a line of credit, the proceeds from selling securities or your available cash, it’s important to be intentional. When you use the right strategy for you, meeting your tax obligations can do double duty: Satisfy the payment and help you meet your long-term goals.
JPMorgan Chase & Co. and its affiliates and/or subsidiaries do not practice law, and do not give tax, accounting or legal advice, including estate planning advice. The tax-related material contained herein has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any financial transaction. We will, however, be pleased to consult with you and your legal and tax advisors as you move forward with your own planning.
Rick Barragan is the Managing Director,
Los Angeles Market Manager, for
J.P. Morgan Private Bank.
[email protected] | (310) 860-3658
privatebank.jpmorgan.com/los-angeles
Source: “There are 3 common ways to pay taxes. Here’s how to consider what may be right for you,” Joe Bakalian, head of Mid-Atlantic and Ohio Lending.
