This year, Uncle Sam is giving U.S. taxpayers some extra time before the filing deadline. The 2012 deadline falls on Tuesday, April 17 as the normal April 15th date falls on a Sunday and Monday is Emancipation Day in the District of Columbia.

While you may get an extra two days to file, don’t expect any reduction in the enforcement of the rules and procedures for those people who decide they don’t want to pay their taxes. Many consumers are unaware that not paying your taxes can result in a tax lien being collected on your profile by the credit reporting agencies.

[Related Article: Stop Procrastinating: Last Minute Tax Tips]

A tax lien is typically considered a negative item in a credit score and remains on your credit report seven years from the date the tax liability is resolved—or longer, if it’s not resolved. The specific point impact a tax lien has on a credit score will depend on the tax lien information reported, as well as the other information contained in the credit report. However, the impact is greatest when the tax lien is recent and where the consumer has no other negative items (missed payment, high credit card balances, etc.) being reported. In these cases, the tax lien can drop the score by 100 points or more.

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Last year, the IRS announced several new rules designed to help people who are having difficulties meeting their tax obligations—some of which will lessen the impact on score. Click here for information on these changes.

So, my fellow procrastinators, do take advantage of these extra two days! And do make sure you file before April 18th so you can avoid late penalties and help maintain your credit reputation.

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Image: tinou bao, via Flickr.com

When consumers receive their annual tax bill, it may be larger than they expected or can afford to pay at once, and in many cases, some may even consider paying the total off with their credit cards.

However, there are a number of downsides to paying one’s annual tax bill with credit cards, according to a report from USA Today.

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The most significant of them is that consumers will have to pay an added fee just to push the transaction through. This charge, known as an interchange fee, is something that shoppers very rarely see so plainly in everyday life, as the companies they’re buying from almost always pay them – and usually build that added cost into the prices of the items they sell.

But the Internal Revenue Service will not pay them, though, and the interchange fee consumers pay on their tax bill depends on their credit card lender, and can range anywhere from 1.89% to 3.93%, the report said. That means a consumer who has a $1,000 tax bill, for example, might have to pay as much as $39.30 just to put the bill on their credit card.

However, there are a number of other consequences that consumers may end up facing if they put their tax bill on their credit card, the most obvious of which is that they’ll be adding to their outstanding debt significantly. In addition to the added cost of the transaction fee, that might mean that they will have to pay far more in interest payments if they don’t pay off the balance in full at the end of the next billing cycle.

[Tax Help: Get step-by-step help and maximize your return with TurboTax]

Another issue is that it can negatively affect consumers’ credit standing. The second-largest portion of a consumer’s credit score is based on how much of their available credit they’re using at any one time. Those who add thousands of dollars or more to that total in one fell swoop will likely take a huge chunk out of that rating, because as far as lenders are concerned, the less available credit that gets used, the better.

In many cases, those who can’t afford to pay tax bills all at once can contact the IRS to negotiate a repayment plan that will help them to better manage the bill without putting it on their credit card or not paying it at all.

Image: dr_XeNo, via Flickr

I have a confession: I have not completed my 2011 tax return. Yes, “Ms. Personal Finance Expert” is procrastinating. I have a pretty good excuse: some of the information I need to file won’t be available for a few more months, but the truth is that this is my most dreaded personal finance chore, and I often file an extension.

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If you’re like me, and putting off finishing your taxes until the last minute, you can at least be thankful that we have until April 17th this year to file. That gives us a little more time to dig up possible deductions. To help you (and me) get our taxes done on time, and get the maximum refund possible, I turned to Lisa Greene-Lewis, a CPA and the Turbotax Blog Manager for advice. She has 15 years of experience in tax preparation, she helps a lot of people through the blog, and she shared her advice in an interview on Talk Credit Radio last week.

Here are some last minute tax tips, excerpted and edited from our interview:

Lisa:    You still have time. It just amazes me how many people think they don’t have time or they think, “I’m going to owe money,” so I don’t want to file. According to IRS, 28% wait to file until these last weeks and they’re surprised to find that they do end up getting a refund. You can go online and e-File and you’ll be guided through 350 legitimate tax deductions and credits.

E-filing is easy, you can use any tax software and you can go online and you’ll be guided through your tax return. And then it prompts you whether or not you want to e-File or paper file and it electronically transmits your information to the IRS securely, based on what you input into the tax return.

[Related Story: 1099-C: The Worst Tax Mess of the Year?]

It will also let you know if there are any errors in your input. It syncs up with the IRS and lets you know if there are any type of errors that you put in incorrectly; Social Security number or anything like that. And there is no fee for e-Filing. It is free.

Gerri: What if you still need more time?

If you need more time you can file an extension. You can file that online and it’s free as well. People just have to keep in mind that it is only an extension of time to file, it is not an extension of time to pay. So you will incur interest and penalties [if you can't pay what you owe].

Gerri: What if you discover you owe money and you can’t pay it?

Lisa: If you don’t have enough money to pay, there are other options. You can do an installment agreement. They’ve increased the eligible amount. You (can use an installment agreement) if you have tax liability up to $50,000 as long as your income is under $100,000.

I suggest you file your taxes, pay what you can – even if it’s a small amount – and then request the installment agreement. They are understanding that people are struggling and as long as you’re acting in good faith, trying to send a little amount or even just sending in your tax return, they will work out something with you.

[Related Article: What To Do If You Can't Pay Your Taxes]

Gerri: Any suggestions for last minute deductions?

Lisa: There are some deductions that you can actually get right up to the deadline. One of my favorite ones is the IRA contribution. You have until April 17th to contribute to your IRA. You can contribute $5,000 and an additional $1,000 if you’re 50 and over. You can do that and still get a deduction on your 2011 tax return.

In addition to that, many people don’t even know about the Saver’s Credit, that goes hand in hand with your contribution to an IRA. The Saver’s Credit is available to lower income families who make contributions to their IRA. You’re able to get a $1,000 tax credit and $2,000 if you’re married filing jointly. Many people miss that one.

Gerri: What about charitable donations?

Lisa: (Taxpayers) don’t realize you can deduct mileage for volunteer work; the travel to get to the charitable institution. People often miss that. They think about the tangible things that they donate, they don’t think about that mileage.

[Tax Help: More guidance, deductions, and returns with H&R Block]

Gerri: Any last words for procrastinators like me?

Lisa: There’s no reason to procrastinate. After all, you don’t want to miss out on your refund. We will have our tax experts available to answer your questions all the way up until the deadline. We want everybody to be able to complete their tax returns.

To listen to the entire interview with Lisa simply right click on the link below to download it or open and play it on your computer. It is also available to download for free in iTunes.

Podcast: Last Minute Tax Saving Strategies

Image: Tax Credits, via Flickr

In 2006, “Anne” and her husband negotiated a settlement on credit card debt of $7,500 with one of the country’s biggest banks for roughly $2,900, wiping out just over $4,500 in debt. But just recently, the couple received a 1099-C from the credit card issuer reporting $16,000 in cancelled debt for the 2011 tax year. Both the amount and the dates are wrong, contends Anne (which is not her real name). Even though she has a copy of the settlement letter from the bank spelling out the terms of their agreement six years ago, a bank representative refuses to correct the 1099-C, stating that her husband had a separate credit card debt that triggered the form. Anne says that’s not true. “What can I do,” she asks?

Her story raises and important issue: what are taxpayer’s rights when lenders send 1099-C forms that are in dispute?

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Start by trying to get the company that issued the 1099-c to correct it, advises Scott Tufts, a board certified tax lawyer with the Tufts Law Firm in Maitland, Florida. “The smartest move is to go to the source, even through the bureaucracy of the company. Document your reason for disagreement with the form,” he advises.

But as Anne’s story illustrates, getting through bank bureaucracy doesn’t always work. She said that after the bank representative  refused to help, she told him she would be hiring an attorney to help her. “He ‘transferred’ me to another department, and the phone disconnected!” she told us in an email.

[Tax Help: Get step-by-step help and maximize your return with TurboTax]

“What the IRS tells you to do is to call the bank to get it corrected but if you’ve ever talked to the bank, you know how far that’s going to go,” says Edward Zoller, a CPA and partner with the tax practice of Thomas, Zollars and Lynch in Arizona. “It’s kind of a mess,” he warns.

Cancelled Debt Isn’t Always Cancelled

I’ve written a series of articles about 1099-Cs and 1099-As, but to recap, these forms are used by lenders report cancellation of debt (COD) income to the IRS. The IRS generally considers cancelled debt to be income and it’s up to taxpayers who receive these forms to either include that amount in their income when filling out their tax returns, or demonstrate to the IRS why the amount should be partially or completely excluded.

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The term “cancelled debt” in itself may be misleading. While these forms are sent to consumers who have negotiated settlements on debts for less than the full balance, or who have negotiated short sales on their homes, the IRS also requires that lenders notify them when there has been no significant collection activity on a debt for 36 months. The creditor may still decide to try to collect the debt at a later date, even though a 1099-C has been sent.

When Kim Thompson’s $91,000 student loan balance was cancelled due to total disability, she thought she had put at least one of her problems behind her. Instead, she traded it for another: a massive debt to the IRS.

Two years ago, Thompson, who lives in New Jersey, was diagnosed with a tumor that eventually led to the removal of most of her small intestine, a pulmonary embolism, and 12-hour-a-day IV feeding sessions. She retired from her job on a disability pension in July 2010, and was able to get her federal student loans cancelled.

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There was no mention, however, that the debt would be reported to the IRS as Cancellation of Debt Income (CODI).

“They didn’t tell me it was taxable income,” she says. “I had no idea.”

The IRS considers most types of cancelled debt taxable income. Lenders must report cancelled debts of $600 or more to the IRS on a 1099-C form. The IRS estimates some 6.3 million 1099-Cs – for all types of debts, including student loans, credit cards, mortgages, etc. – were filed to this year reporting CODI for the 2011 tax year.

Not all cancelled student loan debt is taxable. If Thompson’s debt had been forgiven because she worked in a job that qualified her to have some or all of her debt wiped out (certain medical, teaching or law enforcement positions, for example) she wouldn’t now owe the IRS some $26,000. In addition, she owes $5,000 to the state of New Jersey for cancellation of debt income.

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But there is no tax break for student loan debt that has been cancelled due to disability, despite the fact that borrowers who qualify for cancellation are considered totally and permanently disabled, and may never work again. In fact, the Department of the Treasury has specifically stated that student loans cancelled due to the Death and Disability Discharge (Section 437(a) of the Higher Education Act of 1965) are taxable.

Another option, the insolvency exclusion, which requires debtors to be insolvent immediately prior to the discharge, may have allowed her to avoid paying taxes on some or all of the $91,000 of CODI. Thompson’s accountant concluded she did not qualify, though she’s has some doubt as to whether that’s true.

“The (IRS) forms are incredibly confusing,” she notes.

As a former social worker with a Master’s degree, Thompson says she’s not intimidated by government forms. She filled out all her paperwork to file for disability on her own, for example. However, even though she spent hours researching the rules surrounding cancellation of debt income, she found no relief for her situation. She tried calling the IRS for assistance. The first time she called, she says the IRS representative hung up on her. The second time, she says she waited on hold for over an hour and was then told to call back after she filed her tax return. She claims that ultimately she was warned that if she couldn’t pay the amount due, the IRS would put a tax lien on her house and report her to the credit reporting agencies. (We’ve reached out to the IRS a number of times on this and other issues relating to the 1099-C, but to date haven’t gotten a response.)

[Related Story: A Slew Of Tax Tips To Clean Your 1099-C Mess]

Thompson isn’t the only one who has been struggling with this issue. A reader, Debbie, recently commented on the Credit.com blog:

I have a friend that got two 1099 C’s for cancellation of student loans (federal) due to total disability due to cancer of her husband in Jan 2011.  However, her husband passed away in May 2011…This is just another burden on my friend and I am trying to help her out in all ways possible.  She really freaked since the total of the loans were close to $139,000 and she can’t afford to count that as income.  Source:  Credit.com

And reader T.Long commented on the same story:

I had student loan forgiven around for $75,000 this loan was in 1994 I have not a full time job since that time. I received 1099c from NElNet. What are the ways I can be exempt from this tax other then being insolvent by using form 982? If do have to use form 982 and claim insolvent what type attachments (do) I have send along with 982.

And another reader named Kim commented:

My student loans were discharged. I am on Social Security. Do I have to file the 1099-C I received for $62,000? My student loans were discharged due to total disability and I don’t file taxes because Social Security is non-taxable….HELP!!!!

[Tax Help: Get step-by-step help and maximize your return with TurboTax]

Thompson, who says she would work if she could, is indignant about a policy that forces disabled borrowers like her to trade one type of debt for another.

“There’s a reason my student loans were wiped out and I think they should consider it,” she insists. “It’s just one more thing that I have to worry about.”

Image: DonkeyHotey, via Flickr