Under the expansion of this program unemployed taxpayers who aren’t able to pay their taxes by the April 17^th tax deadline will be eligible for a six-month grace period before the IRS begins imposing the failure to pay penalty. While it doesn’t provide a grace period for filing your tax return, you can still file for an extension so that you can also avoid the failure to file penalty, which is a much stiffer penalty than failing to pay on time.

Typically, when you don’t pay your taxes by the tax deadline the IRS will begin assessing the failure to pay penalty which is currently set at 0.5 percent each month on the total tax owed. That means this grace period can potentially buy you enough time to save a three percent penalty on your taxes owed. Sure, that may not sound like much, but when you’re unemployed every dollar counts.

To qualify for this tax relief you must have been unemployed for at least 30 consecutive days in 2011 or 2012. If you are self-employed, you must have realized at least a 25% reduction in income. If either of these situations describes you, you’ll need to file Form 1127A so you can take advantage of the grace period.

This penalty relief is subject to income limits. A taxpayer’s income must not exceed $200,000 if he or she files as married filing jointly or not exceed $100,000 if he or she files as single or head of household. This penalty relief is also restricted to taxpayers whose calendar year 2011 balance due does not exceed $50,000.

File on Time No Matter What

One of the worst things you can do as a taxpayer is to file your taxes late. People think that just because they don’t owe the IRS any money or because they can’t afford to pay what they owe that they can just kick it under the rug and deal with it later. This is a big mistake.

That’s because the IRS failure-to-file penalty is incredibly stiff compared to just not paying what you owe on time. This penalty is a whopping five percent for each month the tax return is late, up to a total penalty of 25 percent. Compare that to the failure-to-pay penalty which is just half of one percent per month.

So whatever you do, even if you know you can’t pay the IRS on time, file your return on time. If you can’t file your return accurately and on time then be sure to file an extension. An extension won’t also extend the time you have to pay, but as highlighted above, it’s a lot less costly to put off paying a few months compared to not filing for a few months.

9 ways to get prepared for your tax appointment

10 ways to save money on your tax return

5 benefits of using a tax professional

9 Ways to Get Prepared for Your Tax Appointment

Some of these so-called “organization” tips may seem like common sense, but the truth is, not being prepared for tax time can cost you quite a bit of money. If you have an accountant do your taxes and throw a shoebox full of receipts at them, it’s likely they will charge you the extra time required to get it organized — especially if it’s something you could’ve done yourself. Make your accountant happy and get organized before you go to your appointment:

• Organize expenses and income - Get together all 1099s and business receipts from the previous calendar year. Organize them by category in an expandable file folder. Or, if you use an accounting program, do the same with your software.
• Do part of the work at home - Even if you plan to meet with a tax pro, consider utilizing one of the many available free tax software tools to do a bit of up-front work. The software takes the guesswork out of deductions by allowing you to search for possible deductions you may qualify for.
• Bring in an organizer - If your tax preparer mailed you an organizer, be sure to fill it out prior to your appointment. Even if you don’t have a lot of information to include, it helps to have at least something for them to look at.
• Research your charitable deductions -Find out the tax status of your charitable deductions by visiting www.irs.gov/app/pub-78/
• Find your investment’s cost basis - If you sold investments last calendar year, it’s important you know your cost basis (the purchase price + sales commissions and fees, adjusted by reinvented dividends and stock splits). Not knowing may make you pay more in capital gains tax.
• Record of non-cash contributions - If you made non-cash contributions to items over $500 (ex. A car or electronics), provide your accountant with that information.
• Find year-end statements:
  • Brokerage accounts - Year-end statements for any brokerage accounts you have (1099-DIV, 1099-INT and 1099-B) are useful when filing.
  • Profit and loss statements - These are easy to pull if you use accounting software. If not, be sure to enter the expense items in the business page of the tax organizer your accountant sent you.
  • 1098s - You should have received these if you paid mortgage interest on a loan secured by real estate used as a rental property or residence.

10 Ways to Save money on Tax Preparation

We’re not talking deductions and tax credits. Instead, there are many ways to save money when preparing your taxes, from online programs to coupons and business discounts. Here are a few of the best ways to save some dough when filing:

• Tax software companies - If you’re financially savvy, tax preparation software may be for you. Many can be used for a fraction of the cost of an accountant, but you run the risk of missing important deductions and credits. IRS.gov lists more than 20 FREE software companies that may be useful if you earn less than $58,000.
• Financial institution discount - Many banks and credit unions offer preparation services or software discounts to their customers.
• Check coupons and coupon codes - Search sites like CouponCabin.com or CouponWinner.com before purchasing tax software. You may also be able to find coupons for preparing services.  However, many of these expire before April, so be sure to plan ahead.
• Group discounts - Many times, preparers and software will give discounts for multiple family members using the service.
• Referral offers - Some preparers will offer a discount when you refer multiple friends or family members.
• Avoid the rush - Many tax preparers offer discounts for those who file earlier in the season, as well as after April 15. Keep in mind, though, you’ll need to file an extension if you choose the latter option.
• Combination packages - Some tax preparers are offering a combination plan where you can do your taxes online, then bring it into the office to have it checked by a professional. On average, this can save you $75-$100.
• Social networking - Many businesses have begun using social networking to promote their services and offer special deals. For example, a small accounting firm on the east coast is using LinkedIn and Facebook to advertise deals.
• Unemployment package - Many businesses are offering a discount rate if you or your spouse lost a job during 2010.
• Senior discount - If you’re a senior, be aware of the discounted or sometimes free tax preparation services. The same goes for low- to middle-income families.

5 Benefits of Using a Tax Professional

If you’re self-employed, own your own business, or have more to consider than a salaried job and rent, using a tax professional instead of online software could work to your benefit.

The IRS reported about 60 percent of Americans use a tax preparer to help with their yearly tax filing. Why? Because according to many surveyed, tax professionals are better able to offer insight into possible credits or deductions you’re missing, unlike most tax software.

Here are some of the most common benefits:

• Proper guidance - Tax professionals are able to provide guidance with unfamiliar terms and forms you may come across while filing. The Unincorporated Business Tax Return? The Small Business Act? Tax professionals can explain all of it.
• They can point out missed deductions - Perhaps you’re not including clothing donations as a deduction? Or, maybe you forgot about those miscellaneous advertising costs? A professional can help ensure you’ve included all of these in your return.
• They can recommend adjustments - Trained tax preparers can recommend adjustments to home offices or shared workspaces that software programs may not.
• Overall “big picture” recommendations - Tax professionals will look at your income, expenses, and situation, and can recommend ways for you to save money in the future.
• Audit assistance - In the unlikely event you get audited, an accountant can help prepare you for an audit, and can even be present during the audit.

Consider all of the above guidelines when filing your taxes this year – they’ll help save you time and stress in the long run.

About the Author:

Pam King empowers personal finance geeks to save money on their tax preparation costs through research, education and careful decision making.

Unemployment remains high and is still in the double digits in some states, but many Americans are filing taxes while unemployed for the first time. Tax laws are governed by the state of the economy, and the government makes amendments from time to time mainly with a view to giving relief to tax payers. But does the government assist those who are unemployed?

Even if you have been unemployed for more than a year you still need to file a federal income tax return. It is important to remember that all unemployment compensation is taxable. In addition, because you may be in a lower income bracket than when you were working, you may qualify for more deductions or different types of credits than you have in the past. Also, keep in mind that certain job search expenses can be deductible for some taxpayers.

Are Unemployment Benefits Taxable?

For 2010, all unemployment compensation is taxable. Unlike wages, no tax is withheld from unemployment unless you specifically request it by submitting a completed Form W-4′ Voluntary Withholding Request. Once your request is processed, 10% of your benefits will be withheld for federal taxes. Also, you may be able to deduct some of the expenses of finding your next job.

After the first of the year you will receive Form 1099-G from your state’s Department of Labor and Employment containing the necessary information to complete your taxes. Form 1099-G will show the total amount of benefits received and any withholding. The unemployment benefits are taxable on your federal return. H&R Block has online tax prep software for filing your taxes yourself that can help you accurately claim your deductions, credits and job-hunting expenses automatically.

Deductions Related to Your Job Search

You are entitled to tax deductions for expenses you incur in your job search. Deductible expenses include travel, resume preparation, printing, and postage. You can deduct job-seeking expenses as long as the amount of all miscellaneous itemized tax deductions is more than 2% of your adjusted gross income (AGI). To figure your tax deduction, subtract 2% of your AGI from the total amount of these expenses.

Make sure you keep the supporting receipts to make these claims. Job search expenses can be deducted as miscellaneous itemized tax deductions if you look for a job in the same field at the same level as the one you left. Job search expenses are deductible even if you don’t get the job.

Allowable Job Search Tax Deductions

You may be eligible for the following deductions while you’re searching for a job:

1. Resume preparation: typing and printing, postage, long-distance charges, advertising, and professional resume preparation fees required for your resume.
2. Travel: airfare, mileage, meals (based on either actual expenses or standard federal per diem rates) and lodging (actual expenses only) if the primary purpose of the trip is to look for a job and the taxpayer is away from home.
3. Employment agency fees: While not a deduction item, the handling of agency fees can have an effect on your tax situation.  Learn about all the Job Search Deductions you may be able to take this year.

Qualifying for Job Search Tax Deductions

To qualify for the deduction, your job search must be for a job in your current, or most recent, trade or business.

• If you haven’t held a job in that trade or business for an extended length of time, your job search will be considered for a new trade or business, and your deductions may not be allowed.
• If you’re just out of school and had no paying jobs while in school that were related to your trade or business, your deductions won’t be allowed.

In addition to getting a tax deduction for your job search, you may also want to look into some additional education or skills training that can help you land a job. Outdated job skills can prevent you from getting a job in many cases.

Earned Income Tax Credit

The Earned Income Credit (EIC) is a valuable credit for lower-income taxpayers who work. If you worked for any part of the tax year, even if you were unemployed at the end of the year, you may still be eligible for the Earned Income Tax Credit (EITC). It provides a tax credit for one child of up to $3,050. This tax credit is for people who have worked in the tax year, and have earned a low to moderate income. By reducing the amount of taxes you owe, a tax credit means more money for you- and possibly a refund. This Earned Income Credit Table for 2011 can help you determine how much you can receive in these child-related tax credits.

If you have questions about what qualified as a job-hunting expense, or any other tax question, you can always get a free 30-minute consultation with an H&R Block tax pro at an office near you.

If you’re like most Americans you probably have a good handle on completing your taxes on your own. Over the years it has become incredibly easy for anyone with a computer thanks to TurboTax and H&R Block At Home to sit down and go through their tax documents, enter information as the software asks questions, and then even file your return instantly online. For those of you with relatively simple tax circumstances, this is the ideal way to go. The software is inexpensive, most of the questions asked can be easily answered in an hour or two, and there’s very little opportunity for error. It sure beats the days of sitting down with paper forms and spending a few days doing your taxes by hand!

But what about those with slightly more complex financial situations? Sure, there are more robust versions of tax software available such as TurboTax’s Home & Business, Property Manager, and so on. These solutions go into greater depth to help you account for less traditional sources of income and expenses. With more complex finances comes more time and money required to get through the tax filing process, not to mention more room for error. So, at what point does it become cost-effective to make the move from doing your own taxes with the help of software to hiring an accountant?

My Personal Tax Story

As soon as I was on my own I began using tax software to do my own taxes. I have used both TurboTax and H&R Block’s software many times and both get the job done great. For a few years during college my finances were so simple and my income and deductions were so trivial that I could spend under $50 and just about an hour and get my taxes done. Those were the good ol’ days. As time went on my finances started to get a little more complicated. For a few years I was a member of an LLC in addition to working part-time. This created a few unique scenarios that made doing my taxes a little more complicated, yet I was still comfortable in handling it on my own. As the years went on I moved on to where my wife and I just had regular salary jobs, no house, no kids, no odd circumstances, so doing my taxes again became as easy as sitting down at the computer for an hour and plugging in a few numbers.

Then, things started to change as I started to dabble in freelance work and other self-employment ventures. The first few years were easy because it was more of a hobby and the income and expenses generated from the freelance work were trivial. As time went on, more sources of income started coming in, and additional expenses started adding up, my tax returns become more of a nightmare. Sure, the software could still handle it, but I was spending more time tracking down documents, receipts, and trying to find deductions because the tax bill at the end of the year was growing significantly. On year after putting in all of my data the tax software said I owed the IRS nearly $4,000. That’s impossible, I thought. We had as much taken out of our paychecks as possible through work, I was paying estimated quarterly taxes, and was itemizing deductions so that we could deduct as much as possible. There had to be a glitch in the software or I was missing so I plugged the numbers in over and over for about a week straight only to come to the same result.

With that, I knew it was time to seek professional help. We asked around with some friends and co-workers about CPAs that specialize in small businesses and self-employed taxpayers, and I made a few calls around and interviewed a few of them. We eventually found one not too far down the road and their name came up a few different times from the people we asked. So, I set up an appointment. After sitting down with the accountant for about an hour discussing our situation, looking over some numbers, and doing some calculations she knew she could help me. A few days later I was thrilled when I received a call stating that I now only owed somewhere in the neighborhood of $2,500. Wow, that phone call and meeting just saved me about $1,500. Sure, the cost of having my taxes done increased compared to doing it myself, but at around $300 it was some of the best money I ever spent.

When Should You Consider Hiring an Accountant For Your Taxes?

I shared my story just to give you one scenario where making the move to hire a professional can be a good decision. I’m a pretty savvy guy when it comes to finances, but I admit that I don’t do a great deal with taxes on a daily basis. I thought I had enough knowledge with the assistance of tax preparation software to get the job done right, but clearly someone who does this stuff for a living can still do it better than I can. While it was the right decision for me, it may or may not be the right decision for you.

To start off, I want to make one thing clear. There is a difference between an accountant and just a tax preparer. As tax season kicks into gear you’ll begin to see advertisements pop up with tax preparers in your area who will do your taxes for you at a cost. Keep in mind that when dealing with one of these places you probably aren’t going to get a full-blown accountant or CPA. Instead, you’ll likely have someone who is qualified to handle returns, but they will likely do little more than ask you the same questions that software you buy on your own does and then plug in the numbers. While it’s nice to get some one-on-one time with someone, you also want to keep in mind that this person is more or less just trying to get your taxes done, not assess your financial situation and help you put together tax strategies going forward.So remember, there are accountants that do taxes, and there are people who do taxes that aren’t accountants.

Here are a few scenarios when it might make sense to start looking for professional tax help:

1. You own a business.

Self-employed individuals stand to see the greatest return when hiring an accountant. Running a business presents a lot of unique situations that can have a significant impact on your taxes. Being self-employed also opens the door for a new world of deductions, credits, and retirement account planning that you may not be used to. While you can certainly find this information online, having someone who does this for a living will save you time and maybe even some money. In addition to just helping you find all the available deductions and paying the IRS as little as possible an accountant can be tremendously helpful in working with you to structure your business as best as possible, putting together a plan for the future to help you take advantage of tax breaks in the coming year, and being there for you if you encounter problems down the road.

2. Going through a major life change.

If you’ve been plugging alone for the past few years with basically the same financial situation there’s obviously little need to pay someone to do what you’re already comfortable doing. But when you encounter a major life-changing event in the middle of a tax year it could lead to an unpleasant surprise come tax time. Getting married, divorced, changing jobs, having children, receiving an inheritance, preparing to retire, etc. These are the things that can change your financial situation in a heartbeat and if you aren’t prepared it could end up costing you dearly.

3. Real estate or taxable investment dealings.

Do you own a rental property? If so, an accountant will be your best friend. Owning a rental opens up a lot of special tax situations that you’ll surely want to take advantage of and make sure you aren’t making any mistakes. The same thing can go for just buying and selling a home or other real estate. While the laws are pretty straightforward, it’s usually a large transaction in terms of dollars so you want to make sure you’re doing everything properly. Finally, let’s not forget tracking gains and losses on taxable investments. If you buy and sell stocks, bonds, mutual funds, or anything else throughout the year in a taxable account you’re going to have a lot of things to consider. Long-term vs. short-term gains and losses, dividends taxed at a different rate, cost basis, the wash rule, and so on. Sure, you can do this on your own, but how much time will it take and are you sure you’ll catch everything? The time saved by hiring a professional alone may pay for itself.

Don’t Be Afraid to Get Help

For people who like to and are proud of doing things themselves it can be difficult to make the decision to seek outside help. Don’t let that get in the way of doing what’s best for your finances. Sure, the majority of people will be just fine doing their own taxes. If that’s you, grab the latest edition of TurboTax or H&R Block At Home. It’s still the easiest and cheapest way to do your taxes. But for those of you who may have finances that are a little more complex, are self-employed, or would otherwise just like to outsource your tax preparation don’t be afraid to get a professional to help. At most it will probably only cost a couple hundred dollars compared to buying software and e-filing yourself, and chances are you save that much or more on deductions and tax strategies you overlooked by doing it on your own. Whatever you do, make sure you get an early start so you don’t miss the tax filing deadline!

You have many options. You can pay bills, pay off debt, save it, spend it, or invest it. As you can see, that means there’s probably no single right answer for everyone as your financial situation will largely dictate what makes the most sense. That being said, there are a few ways to prioritize how the tax refund gets spent so it’s put to good use. Want to know how much money to expect back this year? Try out the tax refund estimator.

The Tax Refund and Free Government Loan

I’m sure you’ve heard it before, but many financial gurus hammer home the idea that you shouldn’t be happy about getting a large tax refund because it simply means you’re giving the government a free loan with your money. Now on the surface, that’s true. A tax refund is simply the government giving you back the excess money you paid in taxes. It isn’t some government windfall or actual free money. So in a sense, yes, you did give the IRS money to use for free for most of the year before they give it all back (with no interest for the privilege). But is that such a bad thing?

If you are meticulous with your money and strive to keep your tax refund close to zero and then go on to calculate how much extra money you have with each paycheck and put it to use every month, then yes, there are better options for your money. The reality is that most people can’t or won’t do this. Even if they adjust their tax withholding so that their big tax refund approaches zero, the extra few hundred bucks a month typically never gets saved, put into a retirement account, or applied toward debt. Instead, it gets whittled away each month without really impacting any major financial goal.

In situations like this it’s better to be forced to save, even at zero interest, than it is to have a little extra money in each paycheck and spending it without even realizing where it’s going. If the tax refund has anything going for it, it’s that many people who otherwise can’t be disciplined enough to actively save, invest, or pay extra on debt each month, are forced to save and once a year receive the fruits of that labor in the form of a refund.

Obviously, if you have the discipline to do so, you are better off calculating the correct tax withholding on your W-4 and trying to get your tax refund close to zero. This will put extra money into your pocket with every paycheck and that means you can control how it is used rather than letting the government hold onto it for you where it’s not being put to work. But for everyone else who can’t, or isn’t sure they can pull this off, there are still some good uses for that tax refund.

Avoid a Refund Anticipation Loan

If you’re expecting a refund this year, there’s one thing you must certainly avoid: tax refund anticipation loans. You’ve seen the commercials where tax places, or even auto dealerships or your bank, claim to be able to give you your tax refund even before the IRS has a chance to process your return and mail out the check. Resist this urge at all costs. Yes, getting your hands on your own money as soon as possible sounds like a great opportunity, but this is a wolf in sheep’s clothing.

For the privilege of getting your refund a few weeks early, you get hit with stiff fees that will take a bite out of the amount you receive. How stiff are the fees? Well, they are akin to payday loans. It depends greatly on who is offering the RAL, but it often works out to an APR anywhere from 50-500 percent. Would you really be willing to pay that much just to borrow your own money for a few weeks? Well, if you take out an anticipation loan, you basically are. And there is more bad news. If the IRS denies your refund, finds errors, or otherwise reduces the amount you were expecting to get, guess what? You’re on the hook for repaying the loan. The bottom line is that you should avoid these at all costs. Since we’ve covered how not to receive your refund, let’s talk a little bit about good ideas for spending it.

How to Spend Your Tax Refund

The first, and probably most obvious choice is to spend your refund on paying down high-interest debt. If you are carrying high-interest credit card debt, then applying a large payment to reduce the balance will provide both an immediate impact, but also a long-term impact by reducing interest charges by the tune of thousands of dollars over the course of a few years. Just how much could this save you? Well, let’s look at a quick example.

Say you have a credit card with a $10,000 balance and a 19.9% interest rate. For this we will also assume the minimum monthly payment is $200 a month. If you were to continue to just make the $200 payment on this card, it would take nearly nine years to pay off the debt. While that is a long time, even more shocking is the amount you would pay in interest during that time. You would have paid almost $11,000 just in interest on that original $10,000 balance! Now, what happens if you decide to take your $3,000 tax refund and apply it directly to this debt? The numbers are astonishing. Just by putting $3,000 on that credit card, even if you wanted to continue making the same $200 monthly payment, you would cut the repayment period down from almost nine years to just a little over four years. That shaves almost 4.5 years off! Even better, your total interest paid on this credit card drops to just $3,300. That is a savings of more than $7,000!

If that doesn’t open your eyes, I’m not sure what will. You can essentially take what feels like free money from the government and apply it toward high-interest credit card debt and put thousands of dollars into your pocket and shave years off of your goal to become debt-free. If you are carrying credit card debt this is no doubt the single best use of a tax refund. Is it as fun as buying a new TV or going on a little vacation? Of course not, but over the long run it will turn out to be one of the best financial decisions you could have made.

Save It

If you aren’t carrying high-interest debt the next option to look at would be saving it if you don’t already have adequate savings. An emergency fund is a must, and if you don’t have enough money set aside to pay the bills for at least three months in the event of a job loss or other financial emergency, then you’re setting yourself up for trouble if something does happen. If this describes you, then putting that tax refund into a savings account is a good bet. If you already have a savings account you can build on that, but if you don’t have a dedicated emergency savings account set up you might as well open a high-interest online savings account and get started. The interest on a savings account won’t make you rich, but that isn’t the goal with this money. You simply need it to be liquid so that in the event of an emergency, it’s there for you.

An emergency savings is a good start, but if you’ve already got that covered you may want to think about other big-ticket items you’re saving for. This might include a vacation, a new car, or even a down payment on a house. Whatever your savings goal is, using a tax refund to give it a good boost will help keep you on track to reach that goal.

Invest It

After your savings goals have been taken care of it’s time to look at your investing situation. Have you maxed out your 401k or IRA? If not, this is a good opportunity to juice up your retirement nest egg. I know a few thousand dollars doesn’t seem like much in the grand scheme of retirement, but trust me, a little bit today goes a long way. I’ll put it this way: if you were to take a $3,000 tax refund today and put it into a retirement account and earned just a modest 6 percent a year on average, in 30 years that would grow to over $17,000. Nice, right? Well, here is where things really get interesting. If you took your $3,000 tax return and put it into the same retirement account, every year over that same amount of time, you would have over $265,000. Think about that for a moment. All you’re doing is taking your average tax refund and dumping it into your retirement account and suddenly you’ve amassed over a quarter of a million dollars. And this is on top of any other retirement savings you already have and is just a bonus on top of it all. Taking the government’s “free money” every spring and putting it to work before you have a chance to spend it could literally help you obtain the retirement of your dreams.

You may already have retirement contributions under control, so if so, think about other opportunities. If you have children you may want to boost their college savings by putting a little extra into their 529 plans. College just keeps getting more expensive, so a few thousand here and there today could help a great deal in fifteen years.

If college funding and retirement accounts are already chugging along just fine and you’re still looking to invest the money, don’t shy away from regular investment accounts. Sure, you may not receive some of the tax breaks that retirement or college accounts provide, but making money is making money no matter how you slice it. It depends on your goals for the money, but if you’re just looking to create additional income streams, then building a municipal bond portfolio might be the ticket. You can earn regular interest payments that may be entirely tax free. Sure, starting out with just a few thousand dollars won’t generate a ton of income right away, but if you start building an income-generating portfolio today and allow it to grow over the years, you will begin to receive a sizable stream of passive, potentially tax-free income. Again, this is something to consider after you’ve pretty much  maxed out all of your other tax-advantaged avenues.

Treat Yourself

If you’ve been doing everything right and you don’t carry any debt, have a nice savings cushion set aside, and are pumping money into your retirement accounts so that you won’t retire in the poor house, then it may be time to just spend a little money on yourself. There’s nothing wrong with splurging a bit so long as doing so doesn’t hurt you even worse financially. Obviously, going out and buying a brand new HDTV while you’re carrying thousands in high-interest credit card debt isn’t a very good idea, but treating yourself with a little something nice if it won’t put you further in debt isn’t the end of the world.

Just be sure to keep in mind how the purchase will affect your finances in the long run. If you’re splurging just for the sake of immediate gratification while there are more pressing financial issues on the line, realize that what brings you joy today may end up costing you thousands of dollars in the long run. Yes, it’s more fun to do something that makes you feel good right now instead of doing something that may not become apparent for a few years, but trust me when I say you will thank yourself later. While all your friends are bragging about their big tax refunds and all the cool things they are buying, know that they will likely be stuck in this cycle for the rest of their lives while you will come out ahead and will be living without the same financial worries that keep most people up at night.

Potential Penalties

The IRS makes a significant distinction between a taxpayer who fails to file a tax return and one who fails to pay his or her outstanding tax debt. The penalty for “Failure to File” is far more expensive, currently amounting to five percent of the outstanding tax bill per month until the return has been filed. This amount is capped at twenty-five percent, but at that point, other penalties may come into play. The penalty for “Failure to Pay” is currently just one percent of the outstanding tax bill per month. It is important to remember that this penalty is assessed in addition to the “Failure to File” penalty if no return is filed because both apply.

To put the difference between these costs into perspective, consider an example in which your outstanding tax bill is $5000 and no return is filed. In this case, the failure to file penalty will be $250 per month, plus an additional $50 per month for failing to pay. This results in an additional cost of $300 per month. When compared to the case of simply being unable to pay at only $50 per month, it quickly becomes apparent that the cost of not filing is too significant to ignore. The bottom line is to get the return filed on time even if you know you won’t be able to pay. This is where grabbing a copy of tax software such as TurboTax can come in handy since it’s cheap and easy, and you can file your taxes online in a matter of minutes.

Payment Options

While it is clear from the above discussion that not filing one’s taxes is not a prudent choice, the question remains as to what are the options available if you find yourself unable to make the payment when the tax is due. While every situation is unique, the following list of options may be considered to address any existing deficiency.

Credit Cards – While the interest rate on credit cards can be quite high, at one percent per month, the interest charged on late taxes may be higher if you have a low-interest or zero percent credit card available. It is important to weigh the relative cost of each option, but there is an additional advantage to staying off of the IRS’s radar. With this option, you are required to make payment through an IRS approved processor. This processor will likely charge a fee that may be as high as two and a half percent, so that transaction fee should be considered when assessing this option. It’s not an ideal option, but when you owe the IRS money there are few good options.

Borrow Money – If you are only temporarily unable to make the payment due to a financial hardship or unexpected medical bill, a short-term loan may be a good option. This may mean taking a 401k loan or a personal loan from a family-member or friend. In either case, there is an associated cost with borrowing that should be considered. Borrowing from friends or family can strain relationships and tapping into your nest egg can hinder your retirement prospects.

Liquidate Assets – It may be necessary to sell something of value in order to pay your taxes. This may range from jewelry to a car, but if you really feel you have no other viable options or if you just have stuff sitting around that you don’t really need, this may not be such a bad alternative.

Options Directly From the IRS

If none of the above options are viable, the IRS offers two alternatives that may be considered. The first is for those who believe that they can make the full payment over time, while the second is reserved for those who do not believe they will ever be able to meet the debt burden. The following is a brief discussion of each.

Installment Agreement Request – In order to request this option, you would file Form 9465 with your return. The form requires the taxpayer to propose the amount that he or she will pay each month and the timing of the payments. If approved, you will have the ability to pay in installments over time. There is a fee for filing such a request and interest payments will accrue until the balance is completely paid, but it’s far better than not filing or paying at all and letting the penalties stack up.

Offer in Compromise – In order to request this option, you must file Form 656 in addition to an information sheet, Form 433A. You are essentially asking the IRS to accept less than the full amount owed because of dire financial circumstances. You will be required to provide detailed financial information and make a proposal as to the amount to be paid. There is also a fee for this type of application. Don’t expect this option to be an easy way to get out of paying the IRS as much money because you truly do need to show a significant financial hardship that is preventing you from making payment.

No matter what the reason you’re unable to pay, whatever you do, be sure to file your return on time no matter what. The failure to file penalty is significant and it will only make matters much, much worse. After you’ve filed, take the time to sit down and look at all of your options. It might take a month or two to come up with everything needed to get that tax debt paid, but the sooner you start planning, the better off you’ll be and the less you’ll pay in penalties or interest.

To access you tax refund information, you will need some information from the Form 1040, 1040A or 1040EZ you just filed. This includes your Social Security number, filing status and the exact amount of the refund. Your Social Security number is located in the upper-right corner on the first page of all 1040 forms. Your filing status is one of the boxes labeled 1 through 5 that you checked on page one of all 1040 forms. The refund amount is located on Line 74a for Form 1040, Line 43a for Form 1040A and Line 11a for Form 1040EZ.

Go to the IRS Where’s My Refund? website. Enter your Social Security number and the refund amount in the appropriate boxes and fill in the bubble next to your filing status. All the information you enter must match what the IRS has in its records, so double check all the numbers you enter to ensure there are no mistakes. If you need help identifying the requested information on your tax return, click the “shown on your tax return” link in each section for details about where to find it. Click “Submit” and you refund status will appear.

You can also check your tax refund status over the phone by calling the IRS at 800-829-1954. Provide your Social Security number, filing status and the amount of the refund to hear an automated message regarding your tax refund.

If the information you provide online or over the phone does not match what is in the IRS database, you will get a message requesting you to fix any mistakes or contact the IRS for further assistance. If you are sure the information you entered is right, wait 24 hours and try again. If you still cannot check your tax refund status, contact the IRS at the number it provides on its website.

When Your Tax Refund Will Be Mailed or Deposited

The IRS has taken some of the guesswork out of planning for when your tax refund will be mailed or deposited into your checking account. They have provided a chart, as seen below, that can assist you in determining when to expect your money. One thing to note is the cutoff time for a return to be accepted (the leftmost column) is 11 am eastern time on the day it was accepted. If it is accepted after 11 am it would be counted as accepted the following day in terms of meeting the mailing and deposit deadlines.

When you eFile your return you’ll know for sure exactly when your tax return was accepted because you will receive an email confirmation. If you mailed in your return you won’t know exactly when the IRS received and accepted it, so you’ll probably want to use their refund lookup tool mentioned above.

Finally, it’s probably worth reminding you that you still need to get your taxes filed before the tax deadline to avoid penalties. If it doesn’t look like you’ll be able to meet the deadline, then you should look into filing a tax extension.

Tax Extension Basics

All U.S. taxpayers are eligible to receive a six month extension of the filing of their taxes, pushing the due date from April 15 to October 15 (or next business day if these dates fall on a weekend or holiday). The effect of this filing is that the IRS will permit you to delay the filing of your tax return for this additional period of time in order to collect additional information, to locate missing documentation, or because you simply put it off for too long. The purpose of this tool is to allow you more time to collect the information needed to file a complete and accurate return.

The key point here is that it grants you additional time to file your return, not pay your taxes. This is the biggest misconception people have about tax extensions. They usually assume that if you file an extension you also don’t have to pay any taxes, if you owe, until the extension deadline. Unfortunately, that’s not what an extension does.

Filing the Extension

The paperwork required by the IRS to receive a tax extension is called Form 4868. It asks for some basic information and is as short as a single page. In the majority of cases, this is the only documentation required. If the form is completed correctly and on time, the extension should be granted.

Form 4868 is available is a wide variety of formats and from a wide variety of sources. In fact, if you prepare your taxes with the help of software such as TurboTax you’ll have an option to print and file the extension form. Once it has been completed, the software will provide directions on how the form can be filed electronically right through the software.

For individuals who do not use tax preparation software but wish to file their extension electronically, the IRS website provides a series of electronically available forms. These can be filed out online and filed directly. The advantage of using tax preparation software to those who intend to file this way is that the information is then integrated in one’s overall return. There is no distinction on the part of the IRS.

Individuals who use a tax preparer can simply request that they use file the extension. In most cases this will be done electronically, but no further action will be required by the individual. The final approach one can use is to file with a paper Form 4868. The form is available to be printed online, as well as through multiple sources of paper tax documents. The post office, for example, will have complete sets of tax forms; these packets will include Form 4868. Once the form is obtained, it can be filled out and mailed to the IRS.

The Ramifications of a Tax Extension

Filing a tax extension gives the taxpayer longer to collect pertinent information and file a complete and accurate return. It also allows a taxpayer to avoid be assessed a “Failure to File” penalty, which can be significant. But keep in mind that a tax extension gives one longer to file, not longer to pay. At the time a tax extension is filed, the IRS expects the taxpayer to make an estimate of the amount of tax that will be owed and to pay that amount. Interest charges will begin to accrue immediately following the regular tax deadline, so making a payment at the time the extension is filed is important to avoid additional costs.

These penalties can add up. There are two basic penalties the IRS typically imposes: a late filing penalty of 5 percent per month on any tax due plus a late payment penalty of half a percent per month. If you file an extension and then file by the extended deadline you’ll avoid the hefty 5 percent per month penalty. But if you don’t make an estimated tax payment by the April deadline you will still be assessed the half a percent per month penalty.

The Postmark Date

The good news is that a tax return delivered to the IRS by U.S. mail after the due date for the tax return is considered timely filed if the tax return was postmarked on or before the due date of the tax return. This is good news because that means you don’t have to submit your filing and payment a week in advance just to be sure it is in their hands by the deadline. So if you want, you can actually wait until the 17th to get everything in the mail provided the postmark on the envelope shows the 17th. While you can wait until the very last day to do so, I would recommend still mailing a day or two early just to be safe in the event of something coming up that doesn’t permit you to get to the post office or meet the last postal pickup for that day in order to get that day’s postmark.

What About Extensions?

If you filed an extension, you are not off the hook. This extension is simply for filing the paperwork, not the tax payments you owe. If you have waited this long and still don’t know roughly how much you will owe I urge you to find out as soon as possible. You will still need to have your payment, or at least an estimated payment postmarked by the 17th in order to be considered as on time even if you have filed an extension or plan to file one.

The extension will at least prevent you from receiving a late filing penalty on your paperwork but interest will be charged on unpaid tax from the original due date of the tax return. So it is important to send at least an estimated payment before the deadline even if you have filed for an extension so you can avoid as much interest as possible. Here are a few options if you find you can’t pay your taxes by the time they are due.

In addition to interest, there is an issue with late payment penalties as well. This means it is very important to know fairly close to how much your payment will be. The IRS will not impose a late payment penalty so long as the estimated payment you send is at least 90% of the actual payment you owe and that the remainder of the payment is submitted before the end of the extension deadline. So, if you expect your tax payment to be around $1,000 don’t send them a check for $200 as an estimated payment while you continue to work on your return in the extension period.

What You Can do to Avoid Payment Problems Next Year

If you are employed and have taxes withheld each paycheck, the first plan of attack is to adjust your tax withholding. This is done via form W-4 which you should get from your employer and then notify them of any changes. I talked about how to calculate and update your withholding in the past, and this is the best way to make paying your taxes manageable.

If you are self-employed or already file quarterly estimated taxes then it is up to you to make sure you are putting enough money aside to make the appropriate payments each quarter so you aren’t stuck with a bill at the end of the year. Understandably this can be difficult to do when you have income that fluctuates, so the best you can do is estimate what you will owe to the best of your ability. If possible try to withhold a bit more than you think you may need to so that any unexpected changes in income or expenses later in the year won’t throw you off. It is better to err on the side of caution and get a small refund at the end of the year instead of a surprise tax bill.

Doing your own taxes can be an effective way to save time and money. Using the popular tax software H&R Block at Home or TurboTax, you can even start your tax preparation online for free. Then if you decide to, you can purchase the full version and even e-file right online. Getting a head start will ensure you don’t run too close to the tax deadline.

Many states have initiated a sales tax holiday in order to help families to buy supplies they want and need, but also coincide with back-to-school shopping. Most tax holidays help parents save money for school supplies and provide a temporary boost to retail business. The sales tax holiday can include clothes, personal items, and even certain types of electronic equipment. A growing number of states have implemented these holidays, although there are still a number of states with a sales tax that do not participate. I should know, because I live on the Michigan and Indiana border and do my shopping there, but neither state takes part.

Alabama

August 5-7 Covers up to $100 worth of clothes, up to $750 for computers, $50 for school supplies, and $30 for books. - http://www.revenue.alabama.gov/

Arkansas

August 6-7 Covers up to $100 for clothes and all school supplies. - http://www.dfa.arkansas.gov

Connecticut

August 21-27, Covers clothing and footwear up to $300. - http://www.ct.gov/

Florida

August 12-14, Covers books, clothing and footwear under $50 and school supplies under $10. - http://dor.myflorida.com/

Iowa

August 5-6, Covers clothing and footwear under $100 per item. - http://www.iowaccess.org/tax/

Louisiana

August 5-6, Covers most personal property. - http://www.revenue.louisiana.gov/

Maryland

August 13-19, Clothing or footwear under $100 excluding accessory items. - http://www.comp.state.md.us/

Massachusetts

August 13-14. Anything under $2500 . - http://www.mass.gov/

Mississippi

July 29 �’ 30, Clothing and footwear <$100. - http://www.dor.ms.gov/

Missouri

August 5-7, Clothing under $100 each, school supplies under $50 each, computer and equipment under $3500. – http://www.dor.mo.gov/tax/

New Mexico

August 5-7, Clothing and footwear under $100 each, school supplies under $15 each, computers under $1000 and computer equipment under $500. - http://www.tax.newmexico.gov/

North Carolina

August 6-8, Covers clothing under $100 per item, school instructional materials <$300 per item, sports & rec equipment under $50 per item, computers/software/computer supplies <$250 per item. November 5-7 Energy star rated appliances for non-business purposes. - http://www.dornc.com/

Oklahoma

August 5-7, Covers clothing and footwear under $100 each. - http://www.tax.ok.gov/

South Carolina

August 5-7, Covers clothing, school supplies computers & computer software, and linens. October 1-31 Covers qualified Energy Star items for personal use less than $2,5000. - http://www.sctax.org/

Tennessee

August 5-7 Clothing under $100 per item, School and Art Supplies under $100 per item, and Computers under $1500 per bundled package. - http://tn.gov/revenue/

Texas

August 19-21, Clothing and footwear under $100, and backpacks under $100. May 28-30 Energy star products , air conditioners under $6000, and other products under $2000. - http://www.window.state.tx.us/

Virginia

August 5-7, under $20 per item and clothing & footwear under $100 per item. October 7-10 Energy Star Qualified products including appliances purchased for personal use under $2,500 each. - http://www.tax.virginia.gov/

States Without Sales Tax

Don’t see your state on the list? Well, there is good news and bad news. The good news is you may live in a state that doesn’t have a state-wide sales tax to begin with. Residents of Alaska, Delaware, Montana, New Hampshire and Oregon fall into this category. But if you don’t live in one of these states and don’t see your state listed above, you’re on the hook for sales tax all year long. Sorry.