April 15 will be here before you know it. Have you finished your taxes yet?
If you are like many Americans, you will procrastinate as long as you can. In fact, a survey by H&R Block found that almost 40 percent of all Americans in 2002-2003 waited until April to file their taxes, costing themselves $400 due to the mistakes made by rushing and last-minute changes.
Starting early is particularly important if you think you might owe the IRS. Calculating your taxes now does not mean you have to file before the deadline, but it does give you time to prepare for the results. If you find yourself owing taxes and are not sure how you will pay, consider the following:
• File on time. The penalty for failing to file on time is five percent per month of the balance owed. The IRS recommends filing your taxes even if you are unable to pay. If you truly can’t get it done by April 15, file for a four-month extension or submit an Offer in Compromise.
• Pay on time. The failure to pay on-time penalty is a half-percent of the balance due per month. You also will incur interest on the balance due.
• Start saving. By brown-bagging your lunch or reducing other daily expenses, you may be able to save as much as $100 per week. This would enable you to save more than $600 before the big day.
• Get help. There are many institutions — including the government — that will lend you the money for a price. To request a payment plan, complete Form 9465, Installment Agreement Request, and attach it to the front of your income tax return.
• Change your W-4. Contact your company’s personnel department to reduce the number of deductions you claim or have extra money withheld so that you won’t be hit with the same surprise next year.
According to the IRS, more than 1.2 million people paid their federal taxes by electronic funds withdrawal or credit card for 2003. Think long and hard before pulling out the plastic; the last thing you want to do is roll your tax bill into a revolving credit card balance that you will be paying on this time next year.