By:  LINDSEY O’NEILL, ESQ.

With many of us still reeling in the low performing economy, tax time has come all too soon this year.  Reports are indicating that many more people are filing extensions of time to file their tax returns this year.  However, it may be a common misconception that filing an extension also means you get an extension of time to pay.  Nope!  You must pay the taxes you think you owe by April 15th, even if you get an extension of time to file the paperwork. 

One caveat that might play out for a lot of people this year is the tax due on forgiven debt.   Many of you might have received an actual 1099 from your creditor, or mortgage lender, for the amount forgiven either in a debt settlement or loan modification, for example.   That cancelled amount may count as taxable income!  Thankfully, there are some exceptions to this rule.  For instance, the Mortgage Forgiveness Debt Relief Act of 2007 provides an exception for most debt forgiveness resulting from a qualified mortgage modification or foreclosure.  Check out IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments, for more information. 

Depending on what deductions your accountant tells you are available when you actually file your tax return, you may either owe more than you estimated or be entitled to a bit of a refund.  If at the extended deadline (Oct. 15), you realize you’re going to owe more, or even a LOT more, than you estimated….  you might be able to work something out with the IRS.  Options might include a payment plan, offer in compromise, or other settlement option.  If you find yourself in this spot, it is highly recommended to speak to a tax attorney who can assist you with the process. 

Learn more about filing and paying your taxes at LawInfo’s Free Legal Resource Center.  Here are a few links to help you get started:

• Watch LawInfo’s informative videos about Taxpayer Rights, IRS Tax Audits, Resolving Tax Problems, Taxation of Canceled Debt, Offers in Compromise, Federal Tax Liens, and other information here:  LawInfo’s Tax Videos. 
• Read LawInfo’s easy-to-understand legal articles discussing if you are unable to file taxes on time, Alternative Minimum Tax, Child Tax Credits, Common Small Business Tax Deductions, Failure to File Taxes, and frequently asked questions about taxes. 

Of course, you can always find an attorney through LawInfo’s attorney directory at www.lawinfo.com.