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Dealing With Uncle Sam

It's probably the most dreaded day of the year. April 15, the day that is officially set aside as the deadline to file your taxes.

This is how the federal and state governments (or city in my case) determine if they've taken too much money or not enough out of your paycheck. When you start your job, your employer will ask you to fill out an Internal Revenue Service form called a W-4. This will determine how much money is withheld from each paycheck. The amount you have withheld will depend on factors such as your marital status and how many children or dependents you have. On this form, you have to state how many exemptions you want to claim on your taxes. Each exemption is worth a certain amount of money, which changes each year. The more exemptions your request, the more money you will take home each pay period. The fewer you request, the less money you will take home. You can adjust your withholdings any time you feel you need to. The IRS website, www.irs.gov, has a withholding calculator you can use to figure it out.

Now how would you go about filing your taxes each year? There are so many forms on the IRS website, but the main one you have to worry about is the 1040. There are different variations of it. The 1040 is the long form, which you use if you're going to itemize your deductions (that is, try to write off some of your expenses for the year). If you don't have a complicated tax situation, then you can use the simpler 1040A, aka the short form, or the even simpler 1040EZ, aka the easy form.

You will have to decide if you're going to do your taxes on your own or if you're going to pay someone to do them. If you have friends who are good at doing their taxes and are willing to do yours, even better. This is really a matter of personal preference. If your situation is simple enough to warrant use of the short or the easy form, you probably don't need to spend what could end up being a few hundred dollars on a professional. I used to do my own taxes but hired an accountant when my finances got more complicated.

Either way, you're going to have to be a good record keeper. Expect to start receiving all your tax documents in January. Your employer will send your W-2 form, which details your wages and taxes withheld. You will get forms from your student loan company, your bank (if you earned interest on any of your account), the firm that handles your investments if you have any, etc. Also collect any receipts for donating furniture or clothing or making contributions to a charity or church. And if you are a freelancer or have other employment aside from your regular job, keep receipts for all your expenses. Those could be tax deductible.

What do you do if you owe money and don't have it? Many tax lawyers and accountants I've talked to said a lot of people simply don't file their taxes. "If you don't file, a number of things can happen, and all of them are bad," said Burton J. Haynes, a tax attorney in Burke, Virginia.

You incur penalties for not filing a return, anywhere from 5 percent per month of lateness to 25 percent of the amount due. The IRS can also determine your tax liability on its own in what is called a "substitute for return." You certainly don't want that to happen because the agency usually comes up with a number that is much higher than what you owe. Even worse, you can actually be prosecuted for willful failure to file.

If you do file a return and have a tax liability, financial planners and other experts said you should do what you can to cobble together the money. That means raiding your bank accounts and sofa cushions, cashing in those IOUs, and yes, perhaps begging your relatives for loans.

If none of these options works, you should offer the IRS a portion of what you owe, then ask if you can pay the rest in installments.

Finally, you can try to get the IRS to accept what is known as an "offer in compromise," under which the agency agrees to take less than what is owed. That can take a lot of time and effort.

Thankfully, I had not gotten into any trouble with the IRS, but I had other issues to deal with. That's why I decided to get some professional help.

An excerpt from Hot (broke) Messes by Nancy Trejos.

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