1/4 - 20 through a mere 1/8 hole is too coarse a thread for that little thickness. Use a #10 or a metric.
Also, tapping a hole has a bit of art to it. If you do not know the limits of the metals the handles and taps, etc. are made of, you will not know the tricks of performing the task, like the one where you only turn a 1/4 turn or so at a time, and then back off and then go back in, and you slowly work the tap, not attempt to make the turns all in one fell swoop, and yes, some sort of lube is needed.
If you insist on the 1/4 - 20, then you can use the edges of the drill to open up the hole a little bit. Makes the tapped hole a bit looser as well, however.
Ideally, a panel that thin for a hole and subsequent bolt that size should get a boss welded onto the back side of the hole so that the number of threads is increased You should tap the boss first as it will harden up when welded, and then you chase the tap back down through the hole again after it has cooled.
1/4 - 20 can hold a pretty big load. Surely you could use a smaller fastener, like a #10 or such.