What Happens When You Can't Pay Your Taxes?

By Amy Fontinelle | Investopedia

When it comes to taxes, you're supposed to pay them gradually throughout the year so that in April you either don't owe very much or are entitled to a refund of overpaid taxes. But sometimes your life situation changes or an unusual one-time event takes place during the year and when you prepare your annual return, you get an ugly surprise - you owe hundreds or thousands of dollars that you not only didn't see coming, but that you simply don't have. While this isn't a good situation to be in, it's not the end of the world - there are a number of ways to resolve it. Here are your options.

Borrow Money to Pay Your TaxesFor a convenience fee of about 2% to 4%, you can charge your tax liability to your credit card. You could also apply for a debt consolidation loan from a bank or credit union.

If you choose one of these options, you'll have made good with the government, but you'll be shifting your debt to an expensive source. Unless you have a credit card with a very low annual percentage rate (APR) or are able to secure a personal loan at a very low interest rate, you might be making your situation worse. For example, if you owed $5,000 in taxes, the convenience fee to charge this amount to your credit card would amount to $100 to $200. If you had to carry that $5,100 balance on your card for a year at, say, 20% APR, that would add another $1,020 to your bill, bringing the total you owed to $6,120. This is a rough, simplified example of how the math would work, but you get the idea.

Request a Payment ExtensionFiling a six-month tax extension using Form 4868 won't help. This extension only gives you more time to file your paperwork; it doesn't give you more time to pay what you owe. Filing your return on time can help minimize the penalty and interest charges the Internal Revenue Service (IRS) will assess on your late payment, however. The IRS's late payment fees are 0.5% to 1% per month up to a maximum of 25%; the late filing penalty is 5% per month up to a maximum of 25%. Simply filing your return on time can save you a substantial amount in penalties.

If you believe you have a legitimate case, you can try filing Form 1127 to request a six-month payment extension. Along with this form, you'll have to submit a statement of all your current assets and liabilities and an itemized statement of all the money you've received and spent in the last three months. The IRS rarely grants payment extensions, and only if you can demonstrate undue hardship. If you just bought a 60" flat-screen TV last month because you had no idea you were going to owe $5,000 in taxes, you're not going to qualify for a hardship extension.

If you think it will take you more than a few months to pay your tax liability, consider applying for an installment agreement. You can apply online at IRS.gov or by mail using Form 9465-FS. An installment agreement can prevent the IRS from taking enforced collection action. You'll still owe penalties and interest, but your monthly payments let the IRS know that you intend to make good on what you owe.

Borrow from YourselfIf you have an emergency fund, this might be a good time to dip into those savings. It's true that another emergency could come up and then you'll have to charge that emergency to a credit card, but if nothing bad happens, you can use your emergency fund as an interest-free loan to yourself to pay off your tax bill and then start replenishing your fund with each paycheck.

If you own a home and you have enough equity, another way to borrow from yourself is with a home equity loan line of credit (HELOC). These loans have relatively low interest rates compared to credit cards and personal loans, and the interest can be tax deductible. The downside is that your house serves as collateral. Defaulting on a home equity loan or HELOC is like defaulting on your mortgage - it can cause you to lose your house. However, borrowing money this way could turn the large lump sum you owe the IRS into a manageable monthly payment to a mortgage lender.

A third option is to borrow from a retirement account like a 401(k) or IRA. However, because retirement accounts have tax advantages, withdrawing money from them can trigger a tax liability if you don't follow protocol. Borrowing against your retirement nest egg can also interfere with your retirement savings plan.

Pay as Much as You Can, as Soon as You CanUnfortunately, the IRS is going to charge you interest and penalties on the amount you pay late. Similar to charging what you owe to a credit card, these additional expenses are going to make it harder to pay what you owe. However, if there weren't any penalties, everyone would pay late.

The more you're able to pay on time, the smaller the balance on which you'll be assessed interest and penalties. The IRS will eventually send you a bill called Notice of Tax Due and Demand for Payment, but you don't have to wait to get the bill to make additional payments. Pay what you can when you file your return, then send in whatever additional payment you can afford each payday using Form 1040-V.

The Bottom LineWhatever you do, don't ignore the problem. The government could find you guilty of tax evasion and has the authority to forcibly seize your assets if you don't try to make good on your income tax liability. The IRS can freeze your bank accounts, garnish your wages, seize physical assets, like your car, and place a lien on any assets you own, like your house. Go ahead and file your return and pay what you can, then work with the IRS, perhaps with the assistance of a tax professional, to formulate a plan for paying the balance of your tax bill over time.

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Do Rich People Live Longer?

By Kimberly Palmer
Those looking for a magic elixir to keep them healthy and happy need look no further than their bank account. Wealth and, more broadly, socioeconomic status, play a powerful role in determining how long we live. 
"It's clear that those who have less wealth will have fewer years to live than those with more wealth," says James Smith, senior economist at the research group RAND. The connection is so widely accepted that researchers have given it a name: "the wealth gradient in mortality." What's far more complicated to understand is why the connection exists, and whether wealth causes better health, or vice versa. 
The longest-running longitudinal study of health, run by George Vaillant, professor of psychiatry at Harvard Medical School, found education to be one of the biggest determinants of longevity, along with behavioral factors--excessive drinkers were more likely to die young, for example. Out of the 500-plus Harvard students and inner-city Boston men the study has followed since 1937, the Harvard students lived an average of 10 years longer than the inner-city men, says Vaillant. In fact, 3 in 10 of the Harvard students lived to 90, compared to the 3 to 5 percent one would expect from that age group. Among the inner-city men who attended college, health was just as good as that of Harvard students who attended college but not graduate school, says Vaillant. "[The Boston men] went to terrible colleges by Harvard standards, but they did get 16 years of education, and that absolutely evened the playing field," says Vaillant. 
People who go to college tend to drink less, smoke less, and are less likely to be obese, he adds, all factors that contribute to longevity. In fact, after controlling for education and other factors, Vaillant found that income alone had little effect on longevity. People who pursue higher education, explains Vaillant, tend be more focused on the future, which probably also helps them make healthier choices. "In order to get an education, especially if you're poor, you have to think you have a future," he says. Indeed, says Smith, one hypothesis is that "more-educated people are more forward-looking, and when they make decisions, they take into account the future more than uneducated people. A lot of things you might do don't have an immediate negative impact--excessive drinking, smoking, and doing drugs can [feel good in the short-term]--but the fact is it's going to kill you in the future." 
Another possibility is that people with higher levels of education are more likely to maintain their health, have better access to healthcare, and follow doctors' directions when it comes to taking pills or other instructions. Smith's research also suggests that causality doesn't just run one way; health contributes to wealth, as well. "Because you are healthy and able to work, you are wealthier," he explains. At the same time, poor health often takes a toll on a person's wealth, either because it prevents one from working or because of expensive medical treatments. Taken together, researchers at the University of Chicago estimate that the gains in life expectancy between 1970 and 2000 resulted in an additional $3.2 trillion a year in national wealth. Meanwhile, as income disparities continue to grow in this country, so do life expectancy disparities. 
According an analysis by from the Social Security Administration, life expectancy for 65-year-old men in the top half of the earnings distribution has increased by five years, to 21.5 more years. For those in the bottom half of the earnings distribution, life expectancy has increased just over one year, to 16.1 more years. [See How to Calculate Your Retirement Number.] A likely factor, says Monique Morrissey, an economist at the Economic Policy Institute, is differing access to healthcare. "Not just people who are not insured, but if you have better insurance, you might get tested earlier, have better access to care, and be better able to follow complicated treatments--there have been a lot of improvements in cardiovascular care, especially for men," she says. 
While behavioral factors such as smoking and obesity likely explain much of the overall connection between wealth and health, they can't account for the growing disparity in life expectancy, since those behavioral factors are not growing disproportionately themselves. Among younger Americans, health disparities are particularly pronounced, which could adversely affect U.S. life expectancy in the future. Eric Reither, associate professor of sociology at Utah State University, has found that among younger Americans, obesity-related diseases like heart disease and diabetes will likely increase. As a result, Reither says he envisions two Americas in the coming decades. "One that is relatively poor and adversely affected by obesity and related conditions, and one that is relatively well-off and less affected by these diseases. Life expectancy trajectories for these groups will likely follow different paths, with the former stagnating and perhaps even experiencing some decline, and the latter continuing to inch upward."
As for that magic elixir, a group of British scientists now say they have identified a hormone more prevalent in the wealthy that they link to longevity. The hormone regulates one's stress response and is connected to diet, exercise, and relationships--all known longevity-inducing factors. One can imagine that hormone being packaged and marketed as some kind of magic youth serum, next to antioxidant pills and superfoods. But for Vaillant, the answer is much simpler. "Those wonderful pills that are marketed to let you live forever--those things just don't seem to be terribly important," he says. Instead, it's making bigger behavioral choices, such as avoiding drinking too much and nurturing a stable marriage, that let people prolong their lives. And as for what makes people happy in old age, Vaillant says it has more to do with strong, loving relationships than anything for sale at a store. Says Vaillant, "I'm 77, and what I enjoy most are my grandchildren." http://finance.yahoo.com