Facing A Tax Bill? Dave Ramsey Breaks His 'No-Debt' Policy, Says Borrowing From The Bank Beats Owing The IRS, Which He Calls 'The KGB'

When you think of Dave Ramsey, you think of financial freedom, debt-free living and his famous mantra: "Debt is dumb, cash is king." But what happens when the dreaded IRS comes knocking with a hefty tax bill you didn't prepare for? Surprisingly, even Ramsey says borrowing money might be the lesser of two evils in this specific case.

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On an episode of the EntreLeadership Podcast, Ramsey tackled a real-world scenario from a business owner, Ross, whose electrical contracting business faced an unexpected $200,000 tax bill. Ross admitted he had focused all his extra cash on paying off other debts, leaving nothing aside for taxes. The accountant's suggestion? Borrow the money from the bank to settle the tax debt. While this might sound like heresy to Ramsey's usual no-debt philosophy, he agreed.

Why Borrowing Beats Owing the IRS

Ramsey didn't whitewash the reality: if you owe the IRS, you're in trouble. "You'd rather owe the bank on a line of credit than you would the KGB," he said, pointing out that their penalties and interest rates are far harsher 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 might sting, but it's a strategic move. Ramsey explained that most lines of credit carry lower interest rates – often around 8% or so – which are far more manageable than the fines and stress that come with unpaid taxes. You do not want the IRS breathing down your throat, he warned.

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The Real Problem: Poor Planning

While agreeing with the borrowing strategy, Ramsey didn't let Ross off the hook for how he ended up in this mess. "You're running this like it's a $1 million business" when it's a $10 million business, he said bluntly. Ramsey stressed the importance of monthly tax planning, robust accounting systems and professional oversight for a business of Ross’ size. He suggested hiring an in-house controller or CFO and upgrading from entry-level software like QuickBooks to more sophisticated tools like NetSuite.

"You can't outearn stupidity," Ramsey said, telling Ross that he needs systems that match the size and complexity of his business.

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What This Means For You

Ramsey’s advice is clear for anyone facing an unexpected tax bill: handle the IRS immediately. If you don't have the cash, a bank loan or line of credit is your best option. But the real lesson here is about preparation. Regularly set aside money for taxes, especially if you're experiencing rapid growth or success in your business. Work with a qualified accountant who understands your needs and can help you stay ahead of tax liabilities.

If you're growing fast, it's easy to overlook the administrative side of things. However, as Ramsey pointed out, neglecting your financial systems can result in disaster. "Congratulations on killing it," he told Ross, "but now your lack of systems and sophistication is going to cause you to lose it."

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