Whether you're writing a big check in April, or watching a fat chunk of your income vanish with every paycheck, it hurts to hand over your money to Uncle Sam. But a few little-known facts about paying your taxes could make this year's check-in with the Internal Revenue Service a little less painful.
The deadline that isn't
For starters, your federal income taxes are not due on Friday, April 15 this year, but on Monday, April 18. Your state return might be due on the 15th, though -- double-check that date just to be safe.
The current tax code contains close to 4 million words, enough to fill more than 11,000 single-spaced pages. Feel baffled? You're not alone. Your fellow Americans place more than 100 million phone calls to the IRS each year -- and amazingly, they get incorrect answers to their questions as much as 20% of the time.
Charged for charging
If you're thinking of paying your taxes with your trusty credit card, think again. If you do, you'll pay "convenience fees" between roughly 2% and 4% of your payment. Owe $2,000, and you may be forking over an extra $40 to $80 for the convenience! Again, if this is news to you, you're not alone: 68% of Americans don't know about this extra expense.
Home sweet home
On a more positive note, a recent special relief provision may allow you to deduct your private mortgage insurance expenses. If you weren't able to put 20% down when you bought a home in 2007 or later, you likely had to take on PMI -- and you may still be paying it. If so, premiums paid through 2011 may be deductible if you meet the various requirements. (Refinancings since 2007 sometimes qualify as well.)
Itemizing your deductions can really add up in your favor. For instance, your state and local income taxes can qualify, as can mandatory payments to your state's disability and compensation funds. So can property taxes. That's right -- taxes you paid can lower the taxes you pay.
Also, taxes you paid to foreign entities may qualify for a foreign tax credit or deduction. You may think this doesn't apply to you if you've stayed in the U.S. all year, but you may have paid foreign taxes through your mutual fund holdings. Look closely at the 1099 forms you receive.
You may think that if you can't pay your taxes, you shouldn't bother rushing to file your return. Not so! Filing your return on time is important, even if you're financially strapped. At a whopping 5% per month, the penalty for not filing is 10 times as big as the penalty for not paying. Also, you're required by law to file a return; failing to do so can trigger all kinds of legal troubles, penalties, and interest charges. You can't end up in prison for not being able to pay your taxes, but you might get jailed for failing to file.
If you file, but don't or can't pay all you owe, the IRS will charge you a 0.5% monthly penalty fee plus interest until you pay up. However, you may be able to set up an installment plan. The IRS website has an online application for people who owe $25,000 or less in combined tax, penalties, and interest.
You may be grumbling to yourself that it's not fair to make you pay so much, and that the wealthy need to pay more. Would you believe that many of them agree? Bill Gates' father and hundreds of wealthy Americans are part of the Responsible Wealth project, calling for more tax fairness.
We can't escape taxes, but we can minimize the amount we owe by reading up and making the right moves. Here are some valuable resources to help you prepare:
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