When you think of Dave Ramsey, you think of financial freedom, debt-free living and his famous mantra: “Debt is stupid, cash is king.” But what happens when the dreaded tax authorities knock on your door with a hefty tax bill that you haven’t prepared for? Surprisingly, even Ramsey says that borrowing money may be the lesser of two evils in this particular case.
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In an episode of the EntreLeadership Podcast, Ramsey addressed a real-life scenario involving a business owner, Ross, whose electric utility was hit with an unexpected $200,000 tax bill. Ross admitted that he had spent all his extra money paying off other debts and had not put anything aside for taxes. The accountant’s proposal? Borrow the money from the bank to pay off the tax debt. While this may sound heresy in Ramsey’s usual no-debt philosophy, he agreed.
Ramsey hasn’t glossed over the reality: If you owe the IRS, you’re in trouble. “You would rather owe a loan to the bank than to the KGB,” he said, noting that their fines and interest rates are much heavier than any bank loan. The priority, he emphasized, is to get the IRS out of your life as quickly as possible.
Borrowing from a bank can be painful, but it is a strategic move. Ramsey explained that most lines of credit have lower interest rates – often around 8% – which are much more manageable than the penalties and stress associated with unpaid taxes. You don’t want the tax authorities breathing down your throat, he warned.
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While he agreed with the loan strategy, Ramsey didn’t let Ross off the hook for how he got into this mess. “You’re running this like it’s a $1 million company,” when it’s a $10 million company, he said bluntly. Ramsey emphasized the importance of monthly tax planning, robust accounting systems and professional oversight for a company of Ross’ size. He suggested hiring an internal controller or CFO and upgrading from entry-level software like QuickBooks to more advanced tools like NetSuite.
