tax day

What to Do Now to Prepare for Tax Season

Emily Guy Birken — Tue, 10 Dec 2019 17:17:09 +0000

Preparing for tax season often seems more like a sprint than a marathon. You receive your W2 forms in the mail in late January, and then it's time to excavate your receipt shoe box and spend a stressful weekend trying to make sense of your tax return. All in all, it feels like a hurried, overwhelming, and nerve-wracking chore that you dread every year.

But what if filing your taxes didn't have to be quite so stressful?

The trick to making your tax season a breeze is preparing for it early. As in, right now. If you want an easy and relaxed tax season, here's what you can do now to get ready.

Make a list of the information you'll need

One of the most frustrating moments in tax preparation is discovering you're still missing one vital piece of information after you've gathered everything you thought you needed. And it's even worse if you don't know how to find the missing information.

So look over the specific info you need to file now, to give yourself time to gather all the items well before Tax Day. Specifically, you'll need:

A copy of last year's tax return
The Social Security or Tax ID number of every member of your household
The income records of every member of your household
Receipts for your deductible expenses
Records of any taxes you've paid throughout the year

Putting together your list of necessary information and checking each item off as you gather it will ensure that you're fully prepared when you finally sit down to file. (See also: The 7 Most Common Tax Questions for Beginners, Answered)

Organize your receipts

Keeping track of tax-related receipts throughout the year is one of the most difficult parts of handling your taxes. Many people throw all of their receipts for work-related expenses, charitable donations, mortgage payments, medical expenses, and interest statements in a single folder or box to deal with "later."

Now is an excellent time to dig out your receipts and start organizing them according to category. Having your receipts neatly separated now will make it easy to sort the last few that come in as the year comes to a close, and can help you get into the habit of putting them in order as you receive them.

Gather your paystubs together

Though the majority of filers will receive either a W2 or 1099 form from their employer(s), it's still a good idea to gather your paystubs before the end of the year to get a rough idea of your income. That will help you identify any potential mistakes on your W2 or 1099 forms as soon as they arrive. It's far better to catch a mistake early rather than find you need to request a corrected form close to the IRS deadline.

Plus, checking over your paystubs all at once gives you a chance to take a look at your federal and state tax withholding over the year, as well as any pretax contributions you've made to your 401(k) or IRA.

Review your W4

Another great reason to look at your paystubs now is that it gives you a chance to review your W4 with your employer.

The W4 form determines how much tax withholding is taken from each paycheck. If you expect to receive a large refund this year, you can adjust your withholding allowances now to ensure that more of your paycheck will come home with you in 2020. If, on the other hand, you worry that you may owe money because you didn't have enough withheld, now is a good time to adjust your W4 to be sure you don't have the same problem in the coming year. (See also: Are You Withholding the Right Amount of Taxes from Your Paycheck?)

Send more money to your retirement fund

If you have access to a tax-deferred retirement account like a 401(k) or an IRA, now is the time to see how much money you have set aside this year, and try to increase that number.

As of 2019, workers under 50 years old can save up to $19,000 in a 401(k) and up to $6,000 in an IRA. And every dollar you put into these kinds of accounts reduces the amount of income you have to pay taxes on.

Now is an excellent time to try to maximize your 2019 contribution. You have until the end of the calendar year to maximize your 2019 401(k) contribution, but you can continue contributing to your 2019 IRA until April 15, 2020.

Getting into the habit of increasing your contribution now can also help you reach the maximum in 2020, which is going up to $19,500 for 401(k) accounts, although the IRA maximum will hold steady at $6,000. (See also: 8 Tax Return Mistakes Even Smart People Make)

Plan ahead for your refund

If you expect to receive a refund this year, start thinking about the best way to use the money now. We tend to think of a tax refund as "free money," even though it's just your own salary being returned to you. But with a free money mindset, it's very easy to go overboard spending the refund on fun stuff, like a vacation or a new gadget.

There's nothing wrong with enjoying your tax refund, but taking a hard look at your budget and finances now can help you to determine if having fun with your refund is the best use of the money. Is there some debt you could pay down (or pay off) with the refund instead? Or is there a major goal you're saving toward — like a down payment on a house — that would benefit from an injection of cash?

Thinking through the best use of your tax refund before you have it in your hot little hands makes it more likely you'll make good decisions with it. Once you have the money in your possession, it's very tempting to make it rain instead of saving for a rainy day.

Make your tax season less stressful

Getting a jump start on your filing chores will not only make tax season much easier, but it can also help you prepare for your finances in the coming year. Start 2020 on the right financial foot by starting your tax season preparation early.

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This article is from Emily Guy Birken of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

5 Creative Ways to Relieve Stress During Tax Season

Emily Guy Birken — Mon, 26 Feb 2018 09:00:06 +0000

Tax season is upon us, which means millions of Americans will be stressing out about filing their IRS forms correctly and whether they will receive a refund this year.

But just because getting ready for Tax Day can be emotionally taxing (see what I did there?) doesn't mean it has to be. In fact, you can find fun ways to de-stress while preparing your taxes and waiting on your refund check. Here are five ways to let off some steam this tax season. (See also: 6 Moves You Should Make Now for Your 2018 Taxes)

1. Have a tax-themed movie marathon

Watching movies is a time-honored way of getting out of your own head for a little while. If you choose comedies to watch, you'll reap even more stress-relief benefits as laughter releases neuropeptides that help fight stress and cause the body to release its own painkillers. Put that together and it's clear that a tax-themed comedy movie marathon could be just ticket to feeling less overwhelmed by tax season.

Can't think of any tax-themed comedies? There's a surprisingly large number of films that fit the bill:

Stranger Than Fiction features Will Farrell as a tax auditor who discovers that he is actually a fictional character in a famous author's book.

The Blues Brothers kick off their mission from the big man upstairs when they learn the orphanage where they were raised owes $5,000 in back taxes and will have to close if they can't pay the IRS.

Happy Gilmore begins with the title character's grandmother owing $270,000 in back taxes. High jinks ensue as Gilmore (played by Adam Sandler) realizes his ice hockey skills make him an excellent golfer.

The Producers shows what happens when a Broadway producer and his accountant realize they can keep all of their investors' money if they intentionally produce a flop. This tax fraud is a major problem when their flop turns out to be a smash hit.

2. Write a profane limerick about paying taxes

While simply shouting "You forking IRS buttheads!!" (or something a little more profane) each time you get frustrated filling out your 1040 form will certainly help you to relieve your tax-related stress, taking the time to really savor the profanities you'd like to spout about your annoyance can make this even more fun. Plus, expressing your feelings verbally allows you to blow off steam and release those feelings so they aren't stuck in your mind.

Limericks are traditionally both profane and funny, and you can challenge your friends to each come up with their own tax limericks. Whoever comes up with the funniest or most foul-mouthed poem wins.

3. Dance it out

There are a surprising number of tax-related songs out there, which means having a tax dance party would be brilliant way to dance your stress away. Not only does dancing get your heart rate up, which is an immediate mood booster, but cutting a rug to the following songs can remind you that tax woes are so universal that even famous musicians have to deal with them. (See also: These 7 Exercises Are Scientifically Proven to Increase Happiness)

"Taxman" by The Beatles
"Mo Money Mo Problems" by The Notorious B.I.G.
"Sunny Afternoon" by The Kinks
"Movin' Out" by Billy Joel
"Money" by Pink Floyd

4. Host a potluck

Socializing is an important part of reducing stress, and if you're worried about money because your tax bill is about to be due, hosting a potluck can be a great way to spend time with friends without emptying your wallet, or theirs. Each person can be assigned a dish, or bring desserts or beverages, and you can collectively commiserate over how you all wish you could stick it to The Man. (See also: Throw an Awesome Potluck Dinner With These 6 Easy Tricks)

5. Use extra IRS forms to make papier-mâché

Tax time is an ideal opportunity to get back in touch with your artistic side, and if you can use some of the infuriatingly complex tax forms to create your work of art, all the better. Creating a papier-mâché bowl or vase out of your excess IRS forms can feel immensely satisfying while also relieving your tax-related stress.

If it's been awhile since you last made papier-mâché, don't worry. It's easy! Gather together your excess IRS forms, as well as some extra newspaper or other scrap paper to make sure you have enough paper for your project. Find a large plastic bottle or other large base for your papier-mâché project. Tear or cut the paper into one-inch wide strips. Mix one part water to three parts white glue. Dip your paper strips in the glue mixture, and start layering those bad boys on your base, placing no more than four layers of paper at any spot.

Let it dry completely, pull the papier-mâché shell from the base, and start painting it however you like. Consider painting the words "I survived filing my taxes!" across it and making it as a keepsake of this year's tax season.

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This article is from Emily Guy Birken of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

2017 Tax Day Freebies and Discounts

Carrie Kirby — Mon, 17 Apr 2017 14:21:34 +0000

Tax Day this year is Tuesday, April 18, and you know what? It's going to be a good day. Did you know you can get free stuff from a variety of restaurants and other businesses?

Being a Wise Bread reader, you'll probably already have filed your return and pocketed that sweet refund months ago anyway. If not, let a free cup of shave ice or massage ease your last-minute, form-filling frenzy.

2017 Tax Day freebies

These companies are treating taxpayers to something gratis on or around Tax Day.

1. California Tortilla

Free chips and queso with any purchase when customers say the password "tax man."

2. Great American Cookies

The chain will continue its tradition of offering a free treat on Tax Day. This year it will be a Birthday Cake cookie.

3. HydroMassage

Free massages all week, from April 15 through April 22, with printable coupon.

4. Kona Ice

For what Kona Ice calls National Chill Out Day, the company's trucks will be parked at post offices, tax preparation centers, and businesses nationwide to hand out free cups of tropical shaved ice — and Hawaiian leis to boot.

5. Office Depot

Shred up to five pounds of documents for free until April 29 with printable coupon.

6. Schlotzsky's

Free small Original sandwich with purchase of medium drink and chips.

7. Tony Roma's

Tony Roma's will be "writing off" a signature dessert for guests from April 15 through April 17. Any guest who orders an entrée at a participating Tony Roma's will receive a coupon for a free dessert.

Tax Day deals

In addition to the free offers listed above, a number of businesses are offering special discounts for Tax Day.

1. Chuck E. Cheese's

This kids' utopia promises a tax day deal this year but hasn't disclosed the details yet.

2. Boston Market

Boston Market is offering a $10.40 Tax Day meal special: Half chicken individual meal with two sides, cornbread, a regular fountain beverage, and a cookie. In-restaurant only, no online orders.

3. Sonic

Half-price cheeseburgers on Tax Day.

4. White Castle

Between April 14 and April 18, Harold and Kumar's favorite restaurant will give customers 15 percent off all in-store orders.

5. Noodles & Co.

If you filed your taxes digitally, you can get $4 off any $10 order placed online using the code TAXDAY17 at checkout. The promotion runs from April 12 through April 18.

6. Bruegger's Bagels

From April 12 through April 19, Bruegger's will be offering a Big Bagel Bundle (baker's dozen of bagels and two tubs of cream cheese) for $10.40. Stay tuned to their website for a printable coupon

7. Chili's

Participating Chili's will be offering $6 blueberry and pineapple margaritas all day on April 18.

Past offers we may see this year

These companies have offered tax day deals before, but haven't yet announced what they'll do this year. Keep an eye on their websites and social media feeds!

1. Hard Rock Cafe

The Sing for Your Supper promo offered a free burger to anyone with the courage to sing on stage.

2. Staples

Like Office Depot, this chain usually shreds up to five pounds of documents free this time of year.

3. Arby's

The fast food chain has previously offered free curly fries on Tax Day.

4. AMC Theaters

Sometimes these guys give you a free small popcorn on Tax Day.

5. Cinnabon

Cinnabon has previously offered two free Classic Bites on Tax Day.

This article is from Carrie Kirby of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Why Tax Day Is April 15 and Other Weird Financial Deadlines

Emily Guy Birken — Wed, 29 Mar 2017 08:00:22 +0000

April is one of the finest months of the year. The sun breaks through the clouds, the cherry blossoms bloom, and the promise of warm weather beckons.

So of course, the IRS, in its infinite wisdom, decided to place Tax Day right smack dab in the middle of all of this riotous spring beauty.

Though I have always believed that the placement of Tax Day in mid-April is proof of the federal government's grim sense of humor, there is actually some method to their madness — both for this, and all other seemingly arbitrary financial dates and deadlines.

Here are the reasons behind some of the most head-scratching financial dates in the United States.

Why is Tax Day on April 15?

Paying federal income taxes is actually a relatively new phenomenon in American history. The first time an income tax was levied on Americans was in 1861 in order to help pay for the Civil War. In 1872, the law surrounding the tax was repealed after opponents successfully argued that federal income tax was unconstitutional.

Fast forward to February 3, 1913, when Congress adopted the 16th amendment to the constitution, which allows for federal income tax. Congress also determined the first due date for filing 1913 taxes would be March 1, 1914 — one year and a couple of weeks later. March 1 offered an easy-to-remember due date that gave citizens just over a full year to get used to being taxpayers, gather up their receipts into the early 20th century version of a shoe box, and file their first returns.

Then in 1918, the due date was moved to March 15, for reasons that no one in Congress saw fit to explain or write down.

Congress again moved the filing due date in 1955, this time to the now-familiar date of April 15. According to the IRS, the date change helped to spread out the tax season workload for IRS employees.

However, there may be a slightly more mercenary reason for the date change: According to Ed McCaffery, a University of Southern California law professor and tax guru, by the mid 1950s, the income tax was applying to increasing numbers of middle class workers, which meant the government had to issue more refunds. "Pushing the deadline back gives the government more time to hold on to the money," McCaffery claimed in Fortune magazine. And the longer the government holds onto taxes that have been withheld but are destined to be refunded, the more interest it earns on the money.

Okay, so why is Tax Day on April 18 this year?

If you look at an April calendar for 2017, you'll see that April 15 falls on a Saturday this year, which means we get a little extension, since Tax Day can't fall on a weekend. However, you might be confused as to why we get an extension to Tuesday, April 18, instead of Monday, April 17.

The reason for our extra day is a Washington, D.C. holiday known as Emancipation Day. Though only Washington, D.C. observes this holiday, a federal statute enacted decades ago states that holidays observed in our nation's capital have a nationwide impact.

Why was 65 chosen as full retirement age for Social Security?

When the Social Security Act was officially adopted in 1935, the age of 65 was chosen as the standard retirement age for beneficiaries. Why was that age chosen as the proper time for full retirement? Why not 63 or 67 or 70?

There are a couple of persistent myths out there about this choice, but they are nothing more than misconceptions:

Myth #1: People would die before collecting

The age of 65 was chosen so that people would not live long enough to collect benefits. According to life expectancy actuarial tables from 1930, the average life span was 58 for men and 62 for women, which would make it seem as if Social Security was designed to never make a payout to beneficiaries. However, this myth stems from an unfamiliarity with actuarial tables, which offer an average of all life spans, starting from birth. High infant mortality in the 1930s lowered the overall rate of life expectancy, but anyone who made it to adulthood had a much better chance of reaching age 65 and collecting benefits.

Myth #2: Bismarck was 65

The age of 65 was chosen because Otto von Bismarck — the author of the world's first old-age social insurance program upon which our Social Security program was partially based — was 65 when Germany adopted his program. This myth is false on several counts. Bismarck was actually 74 when the German system was adopted, and Germany initially set the retirement age at 70. Germany's retirement age was not lowered to 65 until 1916, at which point Bismarck had been dead for nearly two decades.

The truth behind 65

The actual reason why 65 was chosen as the initial full retirement age for Social Security is pretty boring. The Committee on Economic Security, which Franklin D. Roosevelt created to propose Social Security legislation, conducted a comprehensive analysis of actuarial studies, domestic private pension systems in America, and the social insurance experience in other countries. Based upon that research, the committee recommended 65 as the standard retirement age for Social Security.

Why is 59½ the minimum age to take distributions from tax-deferred retirement accounts?

When it comes to tax-deferred accounts like 401(k)s and traditional IRAs, you are not allowed to take distributions until you have reached the magical age of 59½. Otherwise, you will owe a 10 percent early withdrawal penalty on the amount you withdraw, in addition to the ordinary income tax you'll owe whenever you take a distribution.

So why is the IRS asking you to celebrate half-birthdays when you're nearly 60 years old? Congress used the age of 59½ as the earliest withdrawal age because life insurance actuarial tables consider you to be 60 years old once you have reached the age of 59 and six months — and at the time that the rules were put in place, 60 was a relatively common age for retirement.

Why must you begin taking required minimum distributions from tax-deferred retirement accounts at age 70½?

Of course, the IRS is not just about picking random minimum ages for when you can take distributions from tax-deferred retirement accounts — they also have a random age for when you must take distributions from those accounts.

Since the money in your tax-deferred account was placed there before you paid taxes on it, Uncle Sam does want you to eventually pull the money out again so he can get his cut of the money in the form of taxes. That means the IRS requires each account holder to begin withdrawing money during the year that they reach age 70½. This is called the required minimum distribution (RMD).

But unlike the 59½ rule, 70½ does not actually mean your half-birthday. The IRS makes a distinction between those individuals born in the first half of the year and those born in the second half. If your birthday falls between January 1 and June 30, you have to take your first RMD during the calendar year you turn 70. But if your birthday falls between July 1 and December 31, then you don't officially have to take your first RMD until the calendar year you turn 71.

Describing this year as being when you are 70½ is actually shorthand, since some folks will be taking their first RMD the year they turn 70, and some will be taking their first RMD the year they turn 71.

Why does Social Security think New Year's babies were born in the previous year?

Unless you happen to have a January 1 birthday, you might not know about this odd piece of Social Security dating. But according to the Social Security Administration, individuals born on the first of the year are considered to have birthdays in the previous year. So Social Security will group someone with a January 1, 1954 birthday with beneficiaries who were born in 1953.

This can actually make a big difference when it comes to some Social Security benefits, particularly when those benefits are eliminated. For instance, in 2015 Congress ended the restricted application strategy for any beneficiary born after 1953. The restricted application let applicants specify which Social Security benefits they did not want to apply for, even if they were eligible for all of them. So, for example, beneficiaries who reached full retirement age could claim a spousal benefit while continuing to let their own grow. Beneficiaries who were born on January 1, 1954 were grouped with those with 1953 births — which means anyone born on January 2, 1954 had rotten luck in terms of using the restricted application.

Why does Social Security extend a year 24 hours past the time the rest of us do? This odd birth year dating occurs because the Social Security Administration groups beneficiaries who have birthdays on the first of the month with beneficiaries born in the previous month. This grouping allows first-of-the-month babies to have a little more leeway when it comes to deadlines and other requirements. In order to be completely fair with the first-of-the-month grouping, January 1 babies are then considered to have been born in the previous year.

The government is not entirely lacking in sweet rhyme and pure reason

The financial dates that we all must adhere to may seem like ridiculous and arbitrary decisions, but there was some thought put into them. Those thoughts might only make sense to the people that made the decisions, but at least we know they weren't throwing darts at a calendar.

This article is from Emily Guy Birken of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Beware These 5 Important Tax Changes for 2017

Dan Rafter — Mon, 20 Mar 2017 10:00:10 +0000

The U.S. tax code is constantly evolving. This means that each new year brings a slew of changes that taxpayers need to remember when filing their taxes.

What changes to the tax code took place last year, and how will they impact your federal taxes this year? Tax and financial experts say that the 2016 changes were relatively minor. But that doesn't mean that they won't have an impact on the amount of tax dollars you send to Uncle Sam this year.

Here is a look at five of the most important tax changes from last year, and what they'll mean to you as you file your taxes this April.

1. Standard deductions

The standard deduction for heads of households rose to $9,300 for the 2016 tax year, which was $50 more than in 2015. This amount was raised again for the 2017 tax year (which you'll pay in '18), bringing it up to $9,350.

Other standard deductions remained the same for the 2016 tax year: $6,300 for singles and married taxpayers filing separate returns and $12,600 for married couples filing jointly. For the 2017 tax year, both these numbers will increase again to $6,350 and $12,700, respectively.

2. Extra scrutiny for Earned Income Tax Credit, Additional Child Tax Credit

Dave Du Val, chief advocacy officer at TaxAudit.com, said that the returns of those taxpayers who claim the Earned Income Tax Credit or the Additional Child Tax Credit might receive more scrutiny in 2017. According to new federal law, tax preparers are required to complete several steps — or due diligence — when working with the returns of taxpayers who claim both of these credits.

The Earned Income Tax Credit is a refundable tax credit for working taxpayers with low to moderate incomes, and is designed to provide these filers some financial relief at tax time. The Additional Child Tax Credit is also designed for filers earning low incomes. These filers might receive a tax credit under this provision if their original child tax credit is more than the total amount of income taxes they owe.

Congress doesn't want filers to abuse these credits, Du Val said.

"What this means is that taxpayers who claim these credits inappropriately can lose the ability to claim them for years," Du Val said. "Also, those who use a professional tax preparer who follows the letter of the law might find themselves required to answer more questions and provide more documentation than they are generally used to."

3. You might need a driver's license to file electronically

Michael Eckstein, a tax accountant and owner of Michael Eckstein Tax Services in Huntington, New York, said that several states are now requesting or even requiring that taxpayers provide their driver's license information if they want to file their state tax returns electronically.

"Tax return fraud has been a growing problem," Eckstein said.

States are requesting the driver's license information as one way to cut down on tax-related identity theft.

Most states are only requesting that taxpayers who electronically file provide either their driver's license number or state ID numbers. You'll still be able to submit your state tax returns electronically without providing this information, but doing so might trigger a manual review by your state to verify your identity. This means it make take longer to receive a refund if you don't provide your driver's license or state ID number.

You won't be asked to provide this information, though, when filing your federal tax returns electronically.

4. Mileage deduction rate dips

Do you use your car for business? Then you know you can deduct those miles on your taxes. Unfortunately, that deduction has decreased. For the 2016 tax year, you can deduct 54 cents per mile that you drive your vehicle for business. That is down from 57.5 cents a mile in 2015. For the 2017 tax year, the deduction will decrease again to 53.5 cents per mile.

Be careful when deducting miles, though. You can't deduct the costs of your regular commute to and from work.

5. Three extra days to file

And maybe the most important change for the procrastinators out there? This year, you have a few extra days to file your taxes.

Sure, April 15 is the traditional day in which we're all supposed to file our taxes. But this year, filing day has been pushed back to April 18. Credit this bit of relief to the combination of a weekend and a Washington, D.C. holiday.

The usual April 15 deadline falls on a Saturday this year. Normally, taxpayers would have to file their income taxes on the following Monday, which would be April 17. But the D.C. holiday Emancipation Day is held on Monday, April 17. That gives taxpayers across the country one more extra day to file, April 18.

Federal law states that Washington, D.C. holidays impact tax deadlines the same way federal holidays do.

This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Here's What Happens If You Don't Pay Your Taxes

Carrie Kirby — Fri, 03 Mar 2017 11:00:14 +0000

As Tax Day looms, you may wonder how high the tax man should rank on your list of creditors. Is it better to postpone paying taxes in order to pay off credit card debt, or to keep the electricity running?

Here's what happens if you're not able to pay everything you owe to the IRS, as soon as you owe it.

1. You'll Pay a Penalty

Assuming that you filed your tax return on time but didn't pay your full tax bill, the IRS will charge you 0.5% of what you owe, every month until you pay, up to 25% of the debt. So if you still owed $1,000 when you filed your return on April 18, you'll owe an additional $5 a month.

It's a very good idea to file your return on time, or file an extension, even if you won't be able to pay right away — fees increase if you haven't filed a return by Tax Day. Also, filing on time might get you a break: The IRS says that if you file for an extension or file your return, you may not have to pay the penalty if you've paid 90% of what you owe by Tax Day.

2. You'll Pay Interest

The IRS isn't going to lend you that money interest-free. The rate on money you owe to the IRS is currently 4%.

3. You'll Get a Bill

If you haven't filed your tax return at all, the government will kindly figure out how much you owe for you and send a bill. Actually, not so kindly, because the way they'll calculate your taxes, you'll end up owing more than you would have if you'd done them yourself. The government doesn't have access to all your financial records, so they may not give you credit for your deductions.

Even if you file your return, if you owe money, eventually you'll start getting mail about it from the IRS.

4. You Could Get a Lien on Your Home

If you don't pay those bills (or show the IRS they're wrong and you don't owe), the next step is putting a lien on your property — usually your house, if you own one. This tends to happen if you owe $10,000 or more and haven't worked out a plan with the IRS to pay it off.

A federal tax lien is a legal document that says if you sell your property, the proceeds will go toward your debt before you see a dime. This could make it tough or impossible to take out a mortgage on your home, and complicate the deal if you try to sell your home.

The tax lien will be reported on your credit report and will stay there for seven years, even after you pay the debt. This can make it impossible to get approval for new credit cards or other loans.

5. You Could Lose Your Passport

Thanks to a new law, the State Department can now revoke your passport (or refuse to issue you one) if you owe the IRS $50,000 or more in delinquent debt. So if your plan was to skip out on your debt, you won't get far.

6. The Government Could Seize Your Property

It's called a levy, and it means the IRS can take your Chevy. Or your Ford, or your RV, or boat, or house. They can even garnish your wages or take what you owe right out of your checking account. If you think owing the mob is bad, try owing the federal government.

In the IRS' defense, it doesn't start seizing citizens' property out of the blue. You'll get lots of mail warning that you're in default, telling you that you have the right to a hearing, and explaining that next, they're coming for your stuff. Don't ignore that mail.

7. You Could Pay Larger Penalties

If the IRS determines that your failure to pay in full was due to negligence or fraud, the penalties could climb to 20% or even 75%.

8. You Could End Up in Court

The IRS would rather work with you to get the money. But if you're recalcitrant or showed intent to defraud them, they can charge you with one or more felonies. In 2008, they charged actor Wesley Snipes with conspiracy to defraud the government for refusing to pay taxes on $38 million in earnings. Snipes had joined a movement of tax deniers who interpret various laws to mean that paying taxes is not required.

9. You Could Go to Prison

Most people who owe the IRS don't do time. But Snipes did. He was convicted of three misdemeanors related to his failure to file tax returns and served three years. It could have been worse: Snipes was acquitted for the felonies he had been charged with.

10. Maybe Nothing Will Happen

If the government doesn't have record of your earnings — for instance, if you work for cash and don't get dividends on investments — the IRS may never notice if you don't file a tax return and don't pay a dime. But flaking on filing is definitely a bad idea: Not only will you live in fear of all the consequences mentioned above, but if your earnings are modest, you could be missing out on the earned income tax credit and other benefits of being on record as a wage earner, like the ability to get a mortgage loan.

It's a good idea to keep in touch with the IRS if you owe them money. In fact, if you file your tax return, pay what you can, and then call them up, they may work out a payment plan with you, or even settle for less than the full amount you owe.

This article is from Carrie Kirby of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Get Your Money Sooner by Starting 2016 Tax Prep Now

Damian Davila — Wed, 30 Nov 2016 11:00:07 +0000

Good news, U.S. taxpayers!

In 2017, Tax Day is pushed back to Tuesday April 18th, because April 15th falls on a Saturday and the Emancipation Day holiday (anniversary of the signing of the Compensated Emancipation Act by President Abraham Lincoln) is pushed to Monday April 17th. Residents of Maine and Massachusetts get an extra day to file federal taxes because Patriots Day falls on April 18th, 2017.

However, getting a head start on your return is a better strategy than waiting until April 18th or 19th, depending on your state of residence. From increasing the take-home from your remaining paychecks for the year to making the most out of a bonus check in the first few weeks of 2017, let's review five reasons why it pays off to prep for the 2016 tax season now.

1. Avoid Withholding More Than You Need To

Nearly eight out of 10 U.S. tax filers get tax refunds. This isn't good for two reasons. First, those individuals have to get throughout the year with fewer dollars. The average refund for the 2016 tax season was $2,777, or roughly $230 per month. Wouldn't an extra $230 per month for a full year provide more breathing room in your budget and help you pay down high-interest debt faster? Second, the IRS pays you no interest on the refund from your current year. Now, that's a double whammy.

To find out whether or not you have already withheld enough for this tax season, use the IRS Withholding Calculator and find out how to adjust your Form W-4. Chances are that you will be able to take home more money from your last paychecks from 2016 and avoid having to put those holiday purchases on credit.

2. Spread Out Tax Liability

Of course, using the IRS Withholding Calculator may reveal that you're behind your estimated tax liability. In that case, finding out earlier allows you to take several steps to avoid a huge lump-sum payment next year. Here is your game plan:

Adjust your filing status, number of allowances, and number of dependents on Form W-4 according to the instructions from the IRS Withhold Calculator to increase withholding on the next few paychecks;
Input an additional amount, if any, you want withheld from each paycheck on line six of Form W-4; or
Submit an additional estimated tax payment with the fourth voucher from Form 1040-ES due on January 17, 2017.

3. Boost Retirement Account Contributions

In 2016, you can contribute up to $18,000 ($24,000 when age 50 and over) to your 401K and up to $5,500 ($6,500 when age 50 and over) to your IRA. The catch is that all of your contributions to an employer-sponsored retirement account must be turned by your last paycheck. Even though you can technically submit contributions to your employer-sponsored retirement account until December 31, 2016, your last paycheck may fall on, let's say, December 23rd.

If you know that you still have a lot of room before you hit the maximum contribution limit for your 401K, you're in time to increase the contribution percentage from your paycheck for the remainder of the year. Act fast because some employers may make changes effective anywhere from one to four weeks.

In the event that you don't have a retirement account, find out whether or not you're eligible to set one up by December 31, 2016. As long as you set up your 401K or IRA by this date, any contributions to your retirement account that your employer makes through a commission check or bonus next year before Tax Day or the day that you file your return, whichever is earlier, reduce your taxable income for 2016! (See also: 6 Smart Things to Do With Your Bonus)

4. Get Your Refund Faster

The IRS issues tax refunds generally in less than 21 calendar days. By submitting your tax return earlier, you're increasing your chances of getting your return processed faster. By February 5, 2016, the IRS had received 26,670,000 returns and processed 26,133,000 of those returns. That's a 97.98% processing rate — not too bad. Fast forward to April 22, 2016, the number of returns received by the IRS ballooned to 136,528,000 and the processing rate drops by 3%. The early (tax) bird gets the worm (faster).

Completing your federal return early also helps you get your state refund faster. Remember that this year many states increased the required processing time due to new tax fraud prevention procedures. For example, the Hawaii State Department of Taxation increased the processing window from six to eight weeks to approximately 10 to 14 weeks.

To help increase the odds of a faster refund, opt to file your return electronically, whenever possible, and receive your refund via direct deposit. (See also: 8 Tax Return Mistakes Even Smart People Make)

5. Prevent Tax Identity Theft

Last but not least, a key benefit of preparing and submitting your 2016 tax return early is that it prevents tax-related identity theft. Here's a sample. As of February 29, 2016, the IRS had identified 31,578 fraudulent tax returns involving identity theft. Just six days later, the number of identified fraudulent tax returns increased by over 10,500!

When it comes to filing your return, every single day counts. The longer you wait, the higher your chance in becoming the next victim of tax-related identity theft.

This article is from Damian Davila of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread: