Zombie Economics: Tax Tips
Rick Emerson, author of Zombie Economics, stopped by to offer tips on how to navigate getting your taxes done.
You'll find more financial information on Rick's Zombie Economics website.
1) April 15th is just around the corner, and people might be thinking, “This is the year I save a few bucks by filing my own paperwork.” When does it make sense to do your own taxes?
There are some situations where it’s easy. You should definitely consider doing your own taxes if:
• You have only one job
In fact, if you meet all three of those criteria, filing online is so simple and straightforward that it’s almost a no-brainer. In addition, if you gross under $58,000 a year, the IRS offers free tax-preparation software that makes things even easier. You can find out more by going to IRS.gov and searching for “Free File”.
Beyond that, it’s a question of your own skill-set…and this is where it really pays (literally) to be honest. Ask yourself: Am I good with numbers? Do I have the patience to double-check my information?
When in doubt, here’s a good rule of thumb: are you the one who figures out how to split a four-person lunch bill? If so, doing your own taxes is probably a good idea.
2) When does it make sense to use a tax professional?
• The best indicator is your own gut feeling…that inner voice that sometimes says, “you have no idea what you’re doing.” (Or maybe that’s just me.) In my case, every single time that I’ve ignored that voice, I’ve regretted it…so if you start feeling out of your comfort zone with taxes, it’s time to call someone who does them for a living.
• If your family situation has changed since last year. If you’ve gotten married or divorced, for example, or you’ve had a child, then your tax situation is also different. In fact, if you have kids of college-age or below, period, using a tax professional is often your best bet.
• If you started a new business (even a small one) you should almost certainly have your taxes professionally handled. Remember: it’s not just about saving money, it’s about saving headaches down the road, and business taxes are a world apart from the personal kind.
3) I’m getting a refund this year – how long will it take to arrive?
If you filed online, 10-21 days. If you filed via regular mail, about six weeks.
Filing your taxes electronically has become more than a matter of convenience – it can actually cut your refund-wait time by 75%. And, if you filed online, the IRS provides a website for tracking the status of your refund, so you can get a better estimate of its arrival date. Go to IRS.gov, and in the search box, type “where’s my refund?”, and you’ll be taken to a page which will tell you exactly that.
4) I owe money (or I think I’ll owe money) to the IRS. What do I do now?
File on time, no matter what...and if you can’t pay it all, pay what you can.
I cannot say this loud enough or long enough: it is crucial that you file your taxes on time, even if you think you’ll end up owing. The penalties for not filing are much, much higher than the penalties for non-payment. In other words: it’s better to owe money than to make the IRS come looking for you.
If you owe the IRS more than you have, pay what you can right away – this shows good faith, and can help cover penalties and interest. Then, contact the IRS to set up an installment plan. Remember: they’re not evil, tax-collecting cyborgs (for the most part, anyway)…they’ll work with you to find a payment plan that’s reasonable.
5) Should I just pay the whole tax bill on my credit card?
Probably not. Right now, paying the IRS directly is almost always less expensive.
In past years, taxpayers were often advised to pay off their taxes with a credit card to avoid heavy fines and penalties. At the moment, however, IRS installment plans cost relatively little...about six percent per year. A typical credit card, though, is around 15%, and has added charges and fees on top of that.