With the tax year half over, and especially considering the financial changes many Americans have faced during this year's economic recession, the time is right to review your tax situation and determine whether you need to take action
San Mateo, CA (Vocus) September 9, 2009
Two major deadlines are approaching for U.S. income taxes, and that means it is important for taxpayers to evaluate whether they have tax debt and, if so, how to handle it, according to Ethan Ewing, president of free online consumer portal Bills.com.
The next six weeks present two very important deadlines. Sept. 15 is the deadline for those who pay quarterly estimated income tax to make their third payment for 2009. Oct. 15 is the deadline to file 2008 income tax forms for those who filed for an extension in the spring.
"With the tax year half over, and especially considering the financial changes many Americans have faced during this year's economic recession, the time is right to review your tax situation and determine whether you need to take action," Ewing said.
His suggestions include:
1. Don't forget to file. Those who filed for an extension back in April must remember to file the actual tax return now. For first-time home buyers who purchased a home during 2009 and filed an extension in order to receive the first-time home buyer tax credit, it is especially important to file the return to claim the refund.
2. Estimate how the economy will impact taxes. Check on investments to understand losses from any sales. Talk with a tax advisor to determine whether you should change your tax strategy.
3. Monitor estimated tax payments due. People who are self-employed or for other reasons must pay estimated income tax should re-estimate annual earnings to be certain they are on track. Those who have lost work, for instance, might owe less total tax than previously anticipated. The Internal Revenue Service (IRS) recommends that people who estimated their earnings too high or too low complete a new estimated tax worksheet to calculate their true estimated tax due for 2009. It is important to pay enough tax each quarter to avoid penalties.
4. Pay what you can. The penalties for not paying tax owed with a filed return are much less than the penalties for not filing a return at all. Even if paying the tax bill is a hardship, most people still would be better off filing the return to avoid substantial late-filing penalties.
5. Pay how you can. If it is at all possible to pay a tax bill, the IRS Web site suggests taxpayers consider bank loans, cash advances on credit cards, raiding savings accounts, borrowing against retirement or life insurance, or using equity in assets (such as a home) to pay. However, Ewing adds, "if you are in dire financial circumstances, exchanging one debt for another will not make things easier, and putting a home at risk is almost never a smart move. Consult a tax and/or financial adviser before making a decision."
6. Know the options. The IRS has several methods for taxpayers to pay. These include: an installment agreement (a payment plan); a temporary delay in which the IRS waits to collect (but still charges penalties and interest, and may put a lien on assets); and an offer in compromise, where a taxpayer who is out of financial options makes a one-time settlement agreement with the IRS to pay a lesser amount. Taxpayers with tax debts under $10,000 usually can manage the payment on their own or via an installment plan arranged with the IRS.
7. Ask the IRS if you need help. Taxpayers who absolutely cannot pay their tax bills should contact the IRS. The agency's policies have some leeway for taxpayers who contact the IRS or pay a late bill before the IRS finds them. For those who cannot pay because of a death in the family, serious illness, financial records lost in a natural disaster, or reason the IRS deems "reasonable cause," the IRS might waive penalties after being contacted by the taxpayer.
8. Do not count on bankruptcy protection. Historically, consumers in severe IRS debt might file for Chapter 7 bankruptcy protection in order to wipe out certain unsecured debts, thereby reducing their overall debt burdens. Now, with the bankruptcy "means test," many consumers must file Chapter 13 bankruptcy, which establishes a repayment plan, rather than eliminating all debt.
9. Get help. Specialists, often found at or through reputable debt settlement firms, can negotiate directly with the IRS on behalf of consumers who owe $10,000 or more. Tax relief specialists usually are attorneys, enrolled agents or certified public accountants with special training and experience. They can navigate the intricacies of IRS forms and calculations, help consumers understand IRS criteria, and then help them get back into good standing with the IRS.
"Whether you are reviewing your tax situation, possibly revising your calculation of estimated taxes due, or scrambling to fulfill a filing obligation that you postponed in April, fall is a good time to check up on taxes," Ewing said.
Based in San Mateo, Calif., Bills.com is a free one-stop portal where consumers can educate themselves about complex personal finance issues and comparison shop for products and services including credit cards, debt consolidation, insurance, mortgages and other loans. Bills.com holds the No. 273 spot on the Inc. 500 list for 2009.
Bills.com and its sister companies, Freedom Debt Relief and Freedom Tax Relief, are wholly owned subsidiaries of Freedom Financial Network, LLC. The company has served more than 50,000 customers nationwide since 2002 while managing more than $1 billion in consumer debt. Its RSS feed is available here.