There's More Than One Way to Pay the IRS.
There's a version of a $400,000 tax bill that becomes $800. That's what happens when an entrepreneur uses the IRS code the way it was written as a framework for managing liability while continuing to build.
Most entrepreneurs write a check. The goal is to close the loop and get back to running the business. I understand that impulse completely. The problem is that paying faster doesn't mean you paid correctly. And it definitely doesn't mean you paid the least amount legally owed.
Here's what most people don't know.
The IRS has a lending rate. When you set up an installment agreement, you're effectively borrowing from the government at a rate that you’d rather keep cash on hand for your business than pay outright. Yes this is another thing to calculate and manage but one it could be worth it and two you could outsource it.
If you've already filed and something surfaces, amendments exist. The window is open longer than most people think, generally three years from the original filing date.
The Bill Is a Symptom. The System Is the Problem.
When an entrepreneur sees a large tax bill, the instinct is to focus on the number tactically. How do I pay it? When is it due? Can I delay it?
But the strategic question is different: Why is this number what it is and what decisions made over the past twelve months that produced it?
A tax bill is a report card for your financial decisions. It reflects your entity structure, your income timing, your deduction strategy, your investment choices, and in many cases, the quality of the team advising you. A high bill isn't automatically a sign of a good year. Sometimes it's a sign that the strategy wasn't there when the income was. (if you are planning for an exit, this is different)
The entrepreneurs who consistently manage this well aren't smarter. They're better positioned and more strategic. The bill becomes less of a surprise when you're making the decisions that shape it in real time, not reviewing them after the fact.
Paying the bill is a short-term problem. Building the system that prevents the next one is a wealth decision.
Don’t let a Number Define Your Year
An unexpected number has a way of resetting the emotional scoreboard. I've seen it happen with founders at every level. Seven figures, eight figures, it doesn't matter.
Here's what I want you to hold onto. The bill is not your year. The bill is one output of your year and it’s also not your identity. If we get a big bill, we feel like we have failed and how on earth will I ever pay this? They maybe some mean words about taxes, sucking it up and sending the ACH request.
If this April felt like a surprise, that's the signal. Not to panic, but to build something different before the next one. Let’s dive into what we can do.
Before You Write the Check: A 5-Step Decision Framework
Run through these five steps before any payment goes out.
Verify the number first. Before you pay anything, ask your CPA directly: 'Have all available deductions and credits been applied to arrive at this liability?' Most will say yes. Ask them to confirm in writing or walk you through the major line items. If they can't, that's information. Also check your numbers, I have found numbers being off at times.
Compare your payment options. Cash is clean but it depletes liquidity. If you have investment assets or existing credit lines, ask your financial advisor whether it's more efficient to pay from liquidity or to leverage capital you already have keeping invested assets compounding rather than liquidating them to write a check. KEEP IN MIND: if you are paying an investment advisor for assets under management they probably don’t want you to loan or withdrawal from investments. This could be the case or could be their bias.
Ask about IRS installment agreements. Before assuming cash is always the right answer, find out the current IRS installment rate. Then compare it against what a margin loan or line of credit would cost you. In some situations, the IRS is genuinely the cheaper lender. Understanding the math changes the decision.
If the bill feels wrong, get a second opinion. This is not disloyal. It's fiduciary. Find a CPA who specializes in high-income entrepreneurs and ask them to review the return. Not to replace your current CPA — to confirm the number is right. The cost of that review is almost always less than what a single missed deduction would have cost you. I know several that will do it for $150 or $250 which could be funds well spent if thousands of dollars are found while also giving peace of mind.
If you've already filed, the window is still open. A tax amendment — Form 1040-X — can be filed within three years of the original due date. If something surfaces after filing, the door is not closed. Act within the window. This is also true for previous years if you have a newer CPA who has better knowledge of your situation than before.
Here's how the four payment approaches compare:
Cash (Out-of-Pocket) Paying in cash is the simplest route. While it eliminates any future interest exposure and ensures a clean exit from the debt, it does deplete your immediate working capital. This is the best move for those with high liquidity who want to avoid the administrative headache of debt.
Leveraging Assets or Credit Instead of liquidating assets and potentially triggering capital gains taxes, you can use an existing line of credit, an investment-backed loan, or a margin account. This strategy allows your long-term investments to keep compounding while you use borrowed funds to cover the IRS. It is particularly effective for individuals in high-asset but lower-liquidity situations.
IRS Installment Agreement If cash flow is tight, the IRS allows you to set up a formal payment plan. Because the interest rate is adjusted quarterly, it’s important to compare their current rate against private borrowing options. This is a solid choice for cash-flow-sensitive operators who need to spread the cost over time rather than taking a massive hit all at once.
The "Second CPA" Review Think of this not as a payment method, but as a final filter before the money leaves your bank account. Much like Santa, you should "check it twice" to ensure you aren't overpaying. Having a second set of eyes review the filing can often uncover overlooked deductions or credits that lower the total liability before you commit to a payment plan.
ALTERNATIVE INVESTMENT SPOTLIGHT
Oil & Gas: One of the Last True In-Year Deductions for High-Income Entrepreneurs
If you're staring at a significant tax liability and wondering whether anything can still reduce it, this is one of the few tools that can create a real, meaningful in-year deduction even now, before you file.
Oil and gas investments, specifically the intangible drilling costs (IDCs) associated with working interests, have a tax treatment unlike almost any other investment class. In the year of the investment, IDCs are typically deductible at 70–80% of the invested amount against ordinary income. This can be more but this seems to be what I have seen over the past five years.
For an entrepreneur generating significant W-2 income, pass-through income, or a combination, this can be a meaningful offset. Unlike many real estate strategies, working interest investments in oil and gas are generally not subject to passive activity loss limitations, which means the deduction isn't trapped against passive income. Talk to your CPA to see what they know, if they don’t know reach out to me as I have found two out of five CPAs don’t have the best understanding of
TLDR: oil and gas with IDC can offset active income (meaning W2 or corporate salary) and tax advantaged investments can have 15-30% annualized returns
However, this is not a recommendation to invest. It's a category worth understanding and worth raising with your tax advisor before you file, particularly if your liability is higher than expected and you have capital available to deploy strategically. The investment risk is real. So is the tax treatment. There are also leveraged tax strategies that have a 5:1 ratio. Oil and gas has about a 1:1 meaning $100,000 invested offsets about $100,000 based on your tax rate. Need more capital, consider more leverage.
WANT TO GO DEEPER?
Reply MARGIN and we'll look at your tax bill and give a second opinion to share possible options. You never know if you don’t try.
If you've already paid, the amendment window may still be open. Let's find out.
QUESTION FOR YOU
When you received your tax bill this year, what was the first question you asked and was it about how to pay, or whether the number was right?
Most entrepreneurs ask the first question automatically. The second one takes a different kind of relationship with your numbers and a team that permits you to ask it.
COPY-PASTE: Questions to Ask Before You Pay
Before submitting payment, send this to your CPA or financial advisor:
Have all available deductions and credits been applied to this liability? Can you confirm the major line items?
Is it more efficient to pay from cash, or does it make sense to leverage existing capital or credit?
What is the current IRS installment rate, and how does it compare to our other borrowing options?
Has this return been reviewed by other team members?
If something surfaces after payment, how long is the amendment window open?
These questions take five minutes to ask. The answers could change the decision significantly.
Podcast Relaunch
After a 9 month hiatus I’ve relaunched the podcast. The first episode back is about why I paused and what I learned. I’ll also outline who I'll be talking to and what I'll be covering in future episodes.
BEFORE YOU GO
It is my belief that offsetting taxes is the key to building growth for your business and preserve your wealth.
Start the conversation to learn about the numbers, how the payment is structured, and what decisions between now and December will shape next April's version of that same moment.
Most entrepreneurs will pay and move on. The ones building something durable will use this as a signal about their team, their strategy, and the system they're running their wealth through. Bring your curiosity.
Start with your proactive tax strategy and watch it grow your business based on your new mindset and money. “How you do something is how you do everything.” - unknown
More next week.
— Paul H. Graham