Zen Penny

Seeking the Path to Financial Nirvana

Archive for the ‘taxes’ Category

No Need to Stress If You’re Entitled to a Refund

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Five Cent Nickel brings up an excellent point that I’ve forgotten to mention in my previous posts.

If you qualify for a refund this year, you don’t have to file by today’s deadline. In fact, you have up to three years to file your return and still receive all that you’re entitled to.

Why you would want to wait so long for money you overpaid is beyond me. But the option is there.

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Written by Zenpenny

April 17, 2007 at 6:42 am

So You Can’t Pay Your Taxes. Now What?

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You’ve finally done your taxes. Then the cold reality hits you. It’s every taxpayer’s worst nightmare; a massive tax bill that you can’t afford to pay. What do you do now?

Don’t panic. You have options.

The most important thing to keep in mind is that ignoring your taxes won’t make them go away. Make sure to file that tax return on time, regardless of your ability to pay. The penalties for failing to file are far worse than failing to pay your taxes in full.

The IRS offers various installment plans: automatic debits from your bank account, payroll deductions, and regular installments by check or money order. To request approval for a payment plan, you must fill out Form 9465 or use the Online Payment Agreement page on the IRS website. If approved, the IRS charges a one time setup fee on top of the interest and penalties, $103 for regular installment plans and $52 for automatic debit. Also, if you decide to go with a payroll deduction, your employer must complete Form 2159. If you feel like you can’t even make payments at this time, call the IRS at (800) 829-1040. You may be able to arrange a deferment until your financial situation improves.

If you feel you are simply unable to pay your total tax bill and your situation won’t change in the immediate future, you may be eligible to file an Offer in Compromise. An OIC is an arrangement between the taxpayer and the IRS that reduces the amount owed. The IRS obviously considers this a last resort and will not easily approve such an offer until it is absolutely sure that you cannot pay the full tax liability. To apply for an Offer in Compromise, you must file Form 656. Within this form is a worksheet that will calculate the compromise amount. Along with the form, you must pay a percentage of the compromise amount as well as a $150 fee.

You will want to explore other options to pay your tax bill in full before making arrangements with the IRS. While they won’t haul you off to jail, they will slam you with some pretty harsh penalties. In any of the scenarios described above, you will owe interest on your balance, as well as monthly and quarterly penalties, even if you make your payments on time. You may even face a federal tax lien. If you can, borrow from family members, get a cash advance from your credit card or even take out a line of credit to pay your tax bill in full. In most situations, the fees and interest you pay will be much better than an arrangement with the IRS.

Written by Zenpenny

April 16, 2007 at 7:24 pm

Posted in 2007, taxes

Getting Taxes Done

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Anyone familiar with the phenomenon of Getting Things Done knows that you cannot “do your taxes.” Filing your taxes is a project that requires multiple steps and action items before it can be considered done. The lack of clarity when it comes to approaching the various steps leads to stress. This stress can cause people to avoid filing their taxes until the last minute, or worse yet, not file at all. Applying some of the methods from GTD during tax time can provide a clear path to getting them done and alleviate some of the anxiety associated with this annual process.

Begin by collecting all of your “stuff” related to taxes; any paperwork or information in your possession that is critical or helpful. Don’t concentrate on organizing this stuff yet. Just make sure you capture absolutely everything you have regarding your income taxes.

Once you’ve gathered all the paperwork you have, take a few moments to take mental stock, brainstorm or do some research to answer a few questions: Do you have all of your income statements? What IRS and state tax forms do you need? What is your filing status? What sort of deductions are you entitled to? Will you e-file or mail your return? Do you need any tax software? Should you hire a tax professional? Is there anything you need that is not physically represented in your pile of “stuff”? Answering these questions will likely lead to other questions that are more relevant to your situation. Being able to address these issue during the planning stage will save a lot of time and trouble later on during the process.

At this point, it will be helpful to process and organize your paperwork. Go through each item and determine whether it is actionable, such as a form that needs to be filled out or a statement that contains critical information, or if if serves as a reference, such as instructions on how to e-file. You don’t need a real elaborate organizational setup, just something that allows you to easily find the documents you need.

Now comes the real substantial part of doing your taxes; crunching the numbers and filling in the forms to determine your tax refund/liability. The steps you’ve taken to this point should greatly ease the process. Be sure to take your time. Rushing only leads to mistakes that can increase the likelihood of an audit. Review your numbers, make sure you enter your social security number correctly, and remember to sign and date your return. If possible, have a fresh set of eyes review your return to help catch any obvious errors.

By now you should know what your tax refund or liability is. If you are getting a refund, seriously consider using direct deposit. You will get your money in a matter of days and it means less work and hassle for you. If you owe money, make your check payable to the “United States Treasury” and include your social security number. If you cannot pay your tax bill, don’t panic. There are options. Just be sure to file your return and send whatever you can towards what you owe. I will cover this issue more in depth in an upcoming post.

E-filing is definitely the way to go when you submit your tax return. It is quick and hassle free. Plus it’s cheap, if not free. If you decide not to e-file, call the Post Office (800-ASK-USPS) or go to their website to find out the hours of the post offices in your area. Certain locations will be open until midnight on tax day for you “down to the wire” filers. Be sure to purchase certified mail and proof of delivery when sending your return, the added cost will be worth the peace of mind.

As of this post, you have roughly 30 hours to file your tax return. If you don’t feel like you have enough time, you can file for a one time six month extension using Form 4868. This form does not grant an extension to pay any taxes owed, so you must still send in payment for your estimated tax liability.

Good luck late filers! I hope this little slice of GTD helped or motivated you to file in time. May your calculators stay true and the wind be in your sails all the way to the post office.

Written by Zenpenny

April 16, 2007 at 3:23 pm

Find The Sweet Spot, Adjust Your Withholdings

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How do you feel about tax refunds? Some say it serves as a great forced savings plan that can give us a nice lump sum in the middle of year. Other decry it as an interest free loan to the treasury. Either way your slice it, it is important to review your payroll withholdings so that you achieve the desired results when tax time rolls around. This is especially true when we have major life changes, such as changing jobs, getting married, buying a home or having children.

The IRS provides this handy calculator that will help you determine the right amount of withholdings to reach your goals at tax time. Be sure to have your last paystub within reach as you’ll need to enter how much tax has been withheld year to date.

Remember, you can adjust your W-4 as many times as you like, so your withholdings can change along with your goals.

Written by Zenpenny

April 13, 2007 at 10:13 am

Posted in 2007, taxes

The End is Nigh…

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Only seven more days to file your taxes. Are you ready?

Here are some online resources to help kickstart the process and avoid trouble with the IRS.

MSN Money has some fantastic guidelines for filing your taxes and finding those deductions you may not have known about. You’ll also find information on upcoming changes to the tax code as well as ways to reduce your tax liabilities; a little late for this year but keep them in mind as you prepare for your taxes next year.

Yahoo Finance is a great place to go for tax advice and has some detailed “how-to” guides that cover everything from withholding income to the finding a professional tax preparer that’s right for you. You’ll also find some neat and useful tax calculators.

Believe it or not, the AARP is a great place to turn to when it comes to taxes. Regardless of your age you can use the website to find a local IRS trained volunteer to provide one-on-one counseling and tax preparation assistance, free of charge. You don’t even need to be a member of the AARP to use this service.

1040.com is a very simple site where you can find any Federal and State tax form, all available for download as a PDF.

I’ve used FreeTaxUSA.com to prepare and file my taxes for the last few years. The website is easy to use and there is no software to download. You can probably have your tax forms prepared and filed in under 30 minutes. Their customer service is excellent too. It’s free to file your federal taxes in most states using this site and state taxes can be filed for as little as $9.95.

Finally, the official IRS website is incredibly useful, and unlike most government websites, it’s fairly easy to navigate. Right on the homepage you’ll find links to the most popular forms and a drop down menu that will help you find information on the most basic tax issues. You won’t find much in the way of tax advice on the site (other than to pay them, not evade them) but there are a wide range of tax related topics covered here that most people will find informative.

Written by Zenpenny

April 10, 2007 at 6:44 pm

Posted in taxes