Tips For Last-Minute Tax Filers

There's only five days left to finish your taxes, and if you haven't filed yet, you're far from alone.

The Internal Revenue Service says it expects 20 million tax returns between now and April 15, which is Tuesday. The agency says it also anticipates more than 10 million requests for extensions.

BusinessWeek magazine Personal Business Editor Lauren Young visited The Early Show Thursday with advice for tax procrastinators navigating the waters of last-minute filing. It was the first of a three-part series.

In case you're wondering where the most procrastinators live, tax software provider TurboTax tallied returns filed between April 14 and April 17, 2007, and these 10 cities had the highest number of returns filed during that last-minute time period: Chicago, New York, Houston, Austin, San Francisco, San Diego, Seattle, Las Vegas, San Antonio and Los Angeles.

Why there? Young and the folks at TurboTax figure that, for starters, they're all big cities with a large number of tech-savvy people who realize they can wait until the last minute and easily file electronically. Also, there's a larger percentage of folks who are likely to be paying taxes, rather than receiving a refund, and so are in no hurry to file and pay.

According to Young:

If you're sure you can't finish your taxes by April 15, you need to request an extension.

Filing an extension gives you an additional six months to file your 2007 return, which would then be due on Oct. 15. HOWEVER, you still need to PAY any taxes owed by April 15.

Filling out the appropriate form to request the extension, which can be done online or by a tax preparer, or by completing and mailing the basic paper form, doesn't take much time -- but don't wait until the night of April 14: While the form itself is easy, estimating how much money you're going to owe may take some time.

If nothing significant has changed in your life, you can probably pay the same amount you did the year before and be OK. But if you've switched jobs, sold a house, etc., it will take more time to determine your tax bill. Don't take this lightly - if you underpay by more than 10 percent you'll pay yet another penalty. Lauren says using some sort of tax preparation software is the easiest way to calculate your estimated payment.

Clearly, you won't receive your tax refund until you file your tax forms. But know that you also won't receive this year's tax REBATE -- the economic stimulus check -- until you file.

Part of the reason many people ask for an extension or fail to file is that they owe money.

Here are some questions and answers about paying your tax bill:

Is it Smart to Use a Credit Card to Pay?

"This is a smart move if you earn frequent flier miles or other perks, AND can pay off your bill in a few months," Young says. "But if you're slapping your tax bill on a card with high interest rates, and you don't think you can pay it off anytime soon, you may be better off with an installment agreement.

"Keep in mind that all credit card payments have to be made electronically, through personal tax software, a paid tax preparer, or through credit card service payment providers that you contact by phone or over the Internet."

What if I Can't Pay My Entire Bill At Once?

About three million filers each year set up an installment plan with the IRS. We're not talking about filers who owe a couple of hundred dollars -- the IRS doesn't have much sympathy for those people. Tax payers who can swing an installment loan typically owe up to $10,000 because they had some unusual taxable event, such as selling stock without realizing the tax implications, or they own a small business and may not have been setting aside enough income to pay their taxes.

"If you owe $10,000 or less and can pay it off within three years, you can try to set up an installment loan with the IRS," Young says. "The IRS charges relatively low interest on installment payment agreements -- the interest rate is currently six percent -- but it is variable. Also, they can assess a quarter-point penalty for failing to pay in any month the installment payment is in effect. Any installment agreement the IRS is required to accept must still be for full payment.

"To set up an installment plan, you will have filed and paid your taxes on time for the last five years. The form you need is Form 9465, and you'll need to supply the amount you owe and the monthly amount you propose to pay. You'll be charged a one-time fee, usually $52 or $105, when the IRS accepts your installment payment agreement. The lower fee is for a direct-debit arrangement."

What If I Can't Afford My Taxes, Period?

Although it's unusual, you can sometimes make a deal with Uncle Sam to forgive a portion of your tax bill. But first, you have to persuade the IRS that paying your taxes will impose an undue hardship. Be prepared to bare your financial soul and make a realistic offer to pay at least a portion of your bill, Young advises.