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083 MG Still Haven't Paid Your Income Taxes?

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Broadcast on:
13 Aug 2008
Audio Format:
other

Like what you hear? Help us out by writing a review at iTunes. Questions go to money@qdnow.com. Thank you!

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It's the perfect time to experience the quality and reliability that has made Dickies a trusted name for over a century. Hello and welcome to Money Girls' Quick and Dirty Tips for a richer life. I'm your host, Laura Adams. Today's topic is about what to do if you or someone you know hasn't filed or paid their United States income taxes. Now let's talk taxes. Whether we like it or not, income taxes are a requirement that we can't avoid without serious consequences. I'm sure almost everyone who's listening knows that individual income taxes for each calendar year are due on April 15th of the following year. April 15th is also the deadline for payment of first quarter estimated income taxes. If taxes are not withheld from your income, you may be required to make quarterly estimated tax payments for the current year. This would be the case if you're an independent contractor, for example. So how much money do you have to make before you're required to pay income taxes? The lowest income category is for a single person under the age of 65. Under current law, these folks have to file an income tax return when their gross income reaches or exceeds $8,750 a year. I'll put a link in the show notes to the current tax chart that shows filing status, age, and minimum income requirements for paying income tax. If you didn't file a 2007 return because your income wasn't high enough, you may still need to file one this year in order to receive the 2008 Economic Stimulus Payment. This is how the IRS will know your name, address, and eligibility for the refund. To receive a stimulus payment, you must have a valid Social Security number, have at least $3,000 of 2007 income, and file a 2007 tax return. The IRS began issuing these refund payments to more than 130 million eligible taxpayers in May. Check out the show notes for more information and resources about the Economic Stimulus Payment. Many people don't file tax returns because they don't have enough money to pay their full debt. Or they think that since they owe very little, they can send the return in late. But let me tell you why using either rationalization is a bad idea. There is a penalty for filing late and a penalty for paying late. The penalty for filing a late return is generally 5% per month, up to 25% of the entire amount of tax due. The penalty for paying late is 1/2% per month, up to 25% of the unpaid amount of tax due. So if you owe tax money that you can't pay, remember that you still need to file the tax return. I'm going to repeat this again because it's very important. Always file tax returns by their due dates, whether or not you can remit any money. The only exception to this rule would be if you're getting a tax refund, in which case there's no penalty for filing late. In addition to the monthly penalty for paying late, there's interest calculated on any taxes that remain unpaid. The interest rate changes quarterly and has been as high as 9% and as low as 4% in recent years. I'm not a proponent of carrying a balance on credit cards, but doing so for an on-time payment of income taxes may be one situation where it's wise to do so. Even taking out a loan or dipping into a line of credit to pay taxes may cost much less in the long run when compared to the combination of penalties and interest imposed by the IRS code. Making full payment of taxes on time will usually save you money when analyzing your options. Form 4868 is the application for automatic extension of time to file US individual income tax. Submission of this form gives you an extra six months or until October 15th to file your return. September is a great month for planning. We start thinking about the rest of the year, whether it's back to school, big year-end work projects, holiday plans or travel. Planning ahead is crucial in life, especially when it comes to what happens when you're gone. 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It's the perfect time to experience the quality and reliability that has made Dickies a trusted name for over a century. An extension does not, however, give you any extension of time to pay your debt. If you file the extension by April 15th, you can't be penalized for sending in a late tax form. But you will still be charged penalties and interest on the unpaid tax balance every month until it's paid in full. If you experience some serious or undue hardships that keep you from being able to pay your income taxes, you need to contact the IRS. They can help you determine your options based on individual circumstances. It's important that you voluntarily make arrangements to pay your tax debt. If you don't make any effort to file and pay taxes, the IRS will file a substitute return for you. Their return probably won't be as favorable as the one you would file for yourself. It can actually increase the amount of taxes you owe because the IRS won't include any additional exemptions or credits to which you may be entitled. Then the IRS will send you a tax bill, which begins the collections process. If the bill is not paid, they will take enforced collections actions, such as confiscating your bank accounts, taking your wages, retirement income, social security benefits, putting a federal tax lien against your property, or seizing assets, such as cars, boats, etc. This will do damage to your credit rating and make it very difficult for you to borrow money to pay the tax bill. So you need to exhaust all financial resources before letting a tax delinquency get this far because your options for payment will become very limited. If you're self-employed and choose not to file a return on taxable income, be aware that you're reducing the amount of social security benefits that you'll receive. The Social Security Administration calculates benefits due taxpayers directly from their tax returns. And without completed tax returns, you'll also have difficulty getting approved for credit, loans, mortgages, or federal aid. If you haven't filed a tax return or an extension for your 2007 income taxes, go ahead and file and make arrangements to pay as soon as possible to avoid additional penalties and interest. Cha-ching! That's all for now! Courtesy of MoneyGirl, your guide to a richer life. Send your email comments and money questions to Money@quickanddirtytips.com or call in to the MoneyGirl voicemail line at 1-877-6-Richor. You might just make it on the show. MoneyGirl is part of the QD Now Network. You'll find transcripts of this show, my contact information, and all of the other great Quick and Dirty Tips podcasts at quickanddirtytips.com. I'm glad you're listening. Kendra manages your payroll. She's also six weeks pregnant. 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