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The Taxman Cometh -- Today!

Ylan Mui

This was supposed to be an entry about the best ways to spend your tax refund. I was intending to fantasize about how I wanted to spend the money (dinner at CityZen) and then offer sharp and compelling analysis of how I should spend the money to make it work for me (pay off debt, bolster savings, invest in conservative stocks).

But financial realities have once again intruded into my best-laid plans: I owe the federal government $2,401. My refund from the District is a paltry $652. That means I am on the hook for a net of $1,749.

After I got the news from my accountant yesterday, I started frantically seeking advice from the flurry of tax-related mail that has flooded my inbox in recent weeks. Will any of it really help me?

Don't panic. That's the first helpful tip in an e-mail from the California Society of CPAs. But it's too late. I am already starting to have a freak out at my desk.

Don't panic. The IRS suggests the same thing. Do people not realize this is easier said than done? Beyond that, the agency recommends paying as much as possible by today's deadline. That will help reduce any penalties and interest charged on the balance.

Pay in installments This option sounds attractive -- particularly if you don't have the cash upfront. But the fees are actually pretty high. The IRS charges you $105 for setting it up, though they will knock it down to $52 if the payments are deducted directly from your checking account. The good news is that if you can pay off your balance within 120 days, the fees are waived.

Don't turn to your credit card. Money Under 30 warns against using your credit card as a crutch to get through this. There are third-party fees ranging between 2.5 percent to 4 percent of the charge for the transaction in addition to whatever interest rate your credit card charges.

Get free stuff. Take the edge off the payments by indulging in free treats and discounts today. Frugalista reports that Cinnabon and Maggie Moo's are giving snacks away while Papa John's and P.F. Chang's are offering discounts today. Let us know if you hear of any others!

To pay our tax bill, my husband and I will have to dip into our savings account (again). Though I feel fortunate that we can afford to pay it in full, we will have to redo the budget for projects we had planned for our new house on Capitol Hill. But I guess that's what I get for dreaming.

By Ylan Mui  |  April 15, 2009; 7:00 AM ET
Categories:  Ylan Q. Mui  
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Comments

One great way to avoid panic and plan to be able to pay any taxes owed is to prepare your taxes in advance as soon as possible -- you can wait to file until April 15, but than at least you've had several months to save in small ways to meet your taxed due without "frantically" reacting and "dipping into savings". Employers, banks, mortagage companies etc are required to provide you with the W2s, etc. by the end of January. So as soon as you get those, you can go on to a tax prep site and put your basic info in and at least see where you are. No one needs to be "surprised" by a large tax bill just a few days before April 15. I knew on Feb 1 that I was going to owe over $4000K in taxes, which really is a bummer, but I had over two months to figure out the best way to pay that bill -- rather than two days...And even if you ultimately use an accountant to prepare a file your final return, a few hours of time in Feb planning can save you alot of heartache in April.

Posted by: sldc | April 15, 2009 10:50 AM | Report abuse

Ylan, honestly! You need to start reading Michelle Singletary.

You shouldn't be panicking over an unexpected $1,700 bill -- whether it's for taxes, car repair, vet bills or whatever. You should have an emergency fund saved up.

I believe I'm channelling Michelle when I say -- you and the hubby are in NO position to be thinking about optional home improvements.

Posted by: gettingdizzy1 | April 15, 2009 6:39 PM | Report abuse

I know, I know. I take full responsibility -- both for waiting until the last minute (guilty) and for being surprised (guilty again). According to my accountant, the problem was that we paid less in mortgage interest last year as we built up equity in our homes but neglected to change our withholdings. That problem should be rectified this year as we just bought a new house and have a larger mortgage.

We do have a good sized emergency fund that we can use to pay for things just like this. I just hate having to use it! I'd rather that life didn't have emergencies. And yes, Michelle has been doing this a lot longer than I!

Posted by: ylanmui | April 16, 2009 8:00 AM | Report abuse

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