Doing your own taxes seems to get harder every year. It seems like there’s little reason to try to struggle through the process when inexpensive tax preparation services pop up like mushrooms this time of year and there’s even free software available online.

The Tax Code is Tough, Not Impossible

I’ve done my own taxes on occasion. These days, though, I don’t dare to try to go through the whole process without an accountant handling the tough parts. I simply don’t have enough time to spend on learning the details of every bit of tax preparation — although my situation is a little more complex than other folks’ might be. I have a company of my own, with income coming from several different sources. Let’s just say that I was very happy to be able to hand over the headache of preparing my taxes to someone else.

Even though my accountant does the hard work, I still study the tax code, though. Most of the material on the IRS website is written so that you don’t need an accounting degree to puzzle through it. I sit down regularly with my accountant to discuss changes to the tax code and how they’ll impact my tax return. I probably still could make it through most of my tax return correctly if I absolutely had to.

Honestly, most taxpayers don’t have as complex a tax situation as I do. Provided that you work for an employer who withholds payroll taxes from your check each week, doing your own taxes can just be a matter of checking if you qualify for tax credits, such as those that go along with paying college tuition. There’s a reason that there’s software available to do taxes these days — for the average taxpayer, a piece of software can walk you through the process fairly quickly.

Taxes Are Your Responsibility

If something goes wrong with my tax return, it’s not a big deal for the tax preparer. There are some cases of continuing hanky-panky where an accountant got busted — but for most tax issues, it’s the taxpayer who will wind up talking to the IRS. While that’s not necessarily an argument for sitting down and doing your own taxes every year, it’s a very good argument for being able to at least understand the basics of your own tax situation.

It’s not a particularly simple situation — trying to read up on some of the more obscure tax deductions can lead directly to a migraine — but it is something that is important if you want truly secure personal finances. Going through and doing your own taxes once or twice (and I don’t mean plugging some numbers into software) is the best way to really get a handle on what goes into a tax return. You can, of course, read up on credits, deductions and rules that affect you, but that isn’t quite the same.

Personally, I believe that doing your own taxes at least once can be an incredibly educational process — even if it is a difficult proposition. After all, if you haven’t prepared a tax return, it’s tough to ask the right questions to make sure your tax return is completed properly. That means a mistake can creep through, costing you money (and interest if it isn’t caught soon enough). There’s even jail time at stake with big enough problems — think about all of the celebrities who have had to go to court, despite claims that their accountants were supposed to have taken care of everything. No one wants to wind up in that situation.

So, Should You Do Your Taxes?

At the end of the day, there’s no real requirement to do your own taxes — provided you are comfortable reading through your final tax return and understanding what you see. It’s hard to argue that most people should be as up to date on the tax code as a professional tax preparer or accountant. But, given that you are ultimately responsible for your own taxes, you do have to be sure that who ever does your taxes gets it right.

Staying informed about your taxes has another benefit, as well. The more you know, the more that you can take advantage of deductions and credits to bring down the amount you’re actually paying to the government every year. If you don’t stay informed, though, you simply won’t have the knowledge necessary to take advantage of such opportunities.

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“Any taxpayer who is unable to pay his or her tax bills should still complete a return or file a tax extension by April 18, to avoid costly penalties and interest,” said H&R Block social media manager Leigh Mutert, CPA. The monthly penalty for not filing a tax return is 5%, while the penalty for not paying in full is one-tenth of that, or 0.5%. Even if you cannot pay all of your taxes, you should send what you can with your tax return or extension to file.

An H&R Block professional tax advisor can help you determine what’s best for you; get a free 30-minute tax consultation at an H&R Block office near you.

Three Ways to Pay Your Taxes

If you cannot afford to pay your taxes, there are three ways to deal with this.

Tax payment solutions close to home

• Borrowing money from your 401(k) — There is no early distribution penalty and you the taxpayer would pocket interest paid for the borrowing rather than paying interest to a 3rd party lender.
• Accessing funds using a credit card — But you often face double-digit interest rates and must pay IRS service providers’ processing fees ranging from 1.90 to 2.35%.
• Borrowing money from family or friends — For some taxpayers, the best bet may be borrowing money from family or friends.

Working with the IRS

Taxpayers can work with the IRS to file a tax extension to pay or to arrange an IRS tax payment plan. Interest rates and fees depend on the route taxpayers choose.

• Taxpayers who can pay their debt within 120 days can file a tax extension. If a $ 1,000 tax debt is owed, the total amount paid over four months would be $ 1,033* with penalties and interest.
• Those who need more than 120 days can use an IRS tax payment plan. If a $ 1,000 tax debt is paid off in six months, the total amount paid would be $ 1,066**. Tax debt must be repaid within five years through an installment agreement.

Taxpayers who file a tax extension or opt for an IRS tax payment plan may incur debts on their credit reports, but these debts do not cause the same harm as a property lien.

Solution for those with financial hardships

An IRS offer in compromise (OIC) settles a tax debt for less than the amount owed. The IRS will negotiate with eligible taxpayers to collect what it can. However, only 24% of OICs were accepted in FY2008, and the application process can take up to two years. “It’s not as easy as just asking the IRS to forgive the debt,” Mutert said. “Seeking an offer in compromise is time consuming and requires as much work painting your financial picture as getting a home loan.”

Here are some specifics about OIC:

• New this year, the IRS weighs present and future earnings when deciding OICs, instead of just prior years’ earnings.
• Taxpayers must be current on filing tax returns, not in bankruptcy, and meet one of three conditions to be eligible:
  1. Taxpayer’s assets and income combined equal less than tax debt owed.
  2. Taxpayer believes the tax debt assessed is incorrect and there is no legal decision on the matter.
  3. The full tax debt is owed and is collectible, but a special circumstance exists, such as serious illness or the likelihood to deplete finances.

Get Expert Tax Advice on Tax Payment or Any Topic

H&R Block has a 100% accuracy guarantee and will support you in the unlikely event of an audit. H&R Block At Home online and desktop solutions for tax filing make it easy to file in the convenience of your own home, or you can find an H&R Block office near you.

* Includes a $ 20 failure-to-pay penalty and $ 13 in interest. Interest is the federal short-term rate (currently 0.67%t) plus 3 percent.
** Application fees range from $ 43-$ 105, example uses $ 52. The failure-to-pay penalty is $ 6 and interest is $ 8 (up to 25%).

Recommended articles:

• How to File a Federal Tax Extension
• Do You Have To Pay Taxes On Unemployment Income?
• How to Create 1099-MISC Forms and File Online with the IRS
• How to File an Amended Tax Return and Fix Tax Mistakes

Source: What to Do if You Can’t Pay Taxes from Moolanomy Personal Finance, written by Pinyo.

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• Tax payment solutions close to home?Borrowing money from your 401(k) — There is no early distribution penalty and you the taxpayer would pocket interest paid for the borrowing rather than paying interest to a 3rd party lender

Here’s an excerpt form the Internal Revenue Service web site:

Unemployment compensation is includible in gross income. You must report unemployment compensation on line 19 of Form 1040, line 13 of Form 1040A, or line 3 of Form 1040EZ.

Unemployment compensation generally includes any amounts received under the unemployment compensation laws of the United States or of a state. It includes state unemployment insurance benefits and benefits paid to you by a state or the District of Columbia from the Federal Unemployment Trust Fund…

If you received unemployment compensation during the year, you should receive Form 1099-G (PDF) showing the amount you were paid. Any unemployment compensation received during the year must be included in your income, unless you contributed to the fund…

If you are in the process of filing your tax returns and are wondering if you have to pay taxes on unemployment compensation, I hope this clears it up.

Update for 2010-2011: According to the IRS web site (information updated on December 09, 2010), unemployment compensation is includible in gross income — meaning it is taxable.

Recommended articles:

• How to File an Amended Tax Return and Fix Tax Mistakes
• 2010 Tax Tables, IRS Federal Income Tax Rates And Tax Brackets
• How to Avoid a Tax Audit
• Do You Have To Pay Taxes On eBay Sales?

Source: Do You Have To Pay Taxes On Unemployment Income? from Moolanomy Personal Finance, written by Pinyo.

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I actually did the precise exact same factor last year. You’d believe I’d discover, but I didn’t. Oh well. The good information is that, as lengthy as you catch the error quickly, the penalty will be minicule. In reality, it perhaps so small that the IRS won’t even bother applying it.

Here’s the scoop from Fairmark.com:

Penalty for Underpayment

What occurs if you don’t spend enough, or don’t spend soon enough.

If you don’t spend enough believed tax, or don’t spend on time, you’ll have to spend a penalty. It’s greatest to steer clear of this penalty, of course — but you don’t have to shed rest more than it. The penalty is equivalent to nondeductible curiosity on the quantity you underpaid, for the period of the underpayment. If you underpay only a small quantity, or you correct the underpayment quickly, the penalty will be small.

So what ought to you do if you forgot to make your payment? Go ahead and get it in the mail (or submit it via EFTPS) these days. Beyond that, you could use IRS Type 2210 to figure out whether or not you owe a penalty. In most cases, however, you can proceed as if you had paid it on time and the IRS will let you know if you owe something extra.

It’s also worth noting that you’re exempt from penalties on a late 4th quarter payment if you’ve already paid in at least as a lot as your prior year’s tax bill (this is the so-called “secure harbor” quantity), or if you file your return and spend the complete quantity due by January 31st.

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Zipcar

Zipcar is a car rental company catering specifically to those in the city. You are covered for insurance, gas, and some free miles are thrown in. If you live in the city, then this is a great way to get a car when you need it. Everyone needs a car for something at some time; we just don’t want the hassle of dealing with all the stuff that goes with it. So this is a great idea for when you need a car for a short time. It’s not in all cities yet, but it’s in a lot of them.

Public Transportation

Let’s go back to the basics. You pay taxes, and parts of those taxes go to city transportation. Most cities have it by now and it can make things pretty simple. Just because other people have a car doesn’t mean that you have to have a car. Keeping up for looks can also keep you high in debt.

The only downside public transportation is that it can be hard to lug large items through everything.

Groupon.com

Groupon.com is all about the purchasing power of a large group comes right to your doorstep. One really good deal is set up each day and through group purchasing power, you can get great discounts. There are things like this in lots of cities and it’s a great way to take advantage of what people are offering. When businesses compete for your purchase, you are on the winning end and group purchasing can get you some great discounts.

Happy hour

We all know what it is, so why don’t you make a note of when and where these happy hours and special discount times are located. Businesses do this to help you and why not take advantage of it. Write down when it is, so when you go out you will know where to go so you don’t spend as much.

If you’re going to go spend money having fun and can do the exact same thing for half the price, then you pretty much know where to go don’t you?

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