So I’ll be scurrying around tomorrow, making sure to take advantage of the last day to squeeze in some important 2011 money tasks. Among others tasks, I will:

Make a Goodwill run. We itemize our deductions, so donations of clothes, toys and household items in good condition win us a tax break. This year I’m using the iDonatedIt app to keep track of our donations.

Make some last-minute charitable donations. I just checked Mint.com to see how much we gave this year, and the total is lower than I intended. So I’ll be making a few donations to our favorite charities.

Set up automatic contributions for next year. The easiest way to give is automatically. Some of the causes we benefit (Save the Children, public radio, the Los Angeles Food Bank) are charged every month to our rewards-earning credit cards, which we of course pay in full. I’m going to look for opportunities to set up a few more automatic donations so I won’t be scrambling at year-end next year.

Create my tax file. I’ll pull out the file where I’ve been tossing 2011 tax information and organize it a bit, including a list of tax documents we’re expecting that we haven’t received yet. As those arrive, I can check them off—and follow up with the issuers if we haven’t gotten the documents by mid-February, when we typically file our return.

Get ready to enjoy a happy new year. In the first days of 2012, I’ll be jotting down some personal and financial goals for next year, since putting our intentions in writing is a powerful first step to achieving what we want. For tomorrow, though, we’ll just be kicking back as a family, ringing in the new year at home. May your celebrations be as peaceful and happy, and may you have a wonderful, prosperous new year.

We paid the minimum monthly payment required, which didn’t cover all the interest owed, so that amount was added to our mortgage balance. Like others, we have experienced the nightmare of the current housing market, and with the negative amortization adding on even more debt, we are severely underwater.

We’ve worked with two companies trying to get a workable loan modification but to no avail. The bank is not cooperating at all.

A lawyer I consulted is advising us not to pay at all going forward, saying that the upside-down home isn’t worth saving or worth the grief. She told us to put our payment amounts into savings so that we have something to live on after we have to leave the home, which I so far have been able to do. But I’m worried about the potential fallout.

Would we be required to pay taxes on the remaining balance we owe after a foreclosure? If we can’t afford to pay the taxes on $200,000 of untaxed income (that we really didn’t earn), what do we do then? Does bankruptcy help with that?

Answer: When a lender cancels or “forgives” debt, it typically sends you a Form 1099 for the amount of forgiven debt. This amount usually must be included as income on your tax return. But there’s a big exception when it comes to mortgage debt secured by your primary residence.

The Mortgage Forgiveness Debt Relief Act of 2007 generally allows you to exclude from your income the debt that’s left over after a foreclosure. The law applies for the calendar years 2007 through 2012.

You can find more information about the act in IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments, as well as in IRS news release IR-2008-17.

In some cases, lenders aren’t content to write off the excess debt and instead decide to pursue homeowners after foreclosure for the remaining balance owed. You may be protected by state law from such a lawsuit (as homeowners in California typically are), but you’ll want to discuss this possibility with your attorney. If you are hit with such a lawsuit, you may need to consider filing for bankruptcy.

Given that I don’t get a refund on April 15 and end up having to pony up a lot of money, is there a way for me to set aside my self-employment income into a retirement account such that I can just bypass all taxes on it, including payroll taxes? Would a traditional IRA work that way? If so, how would the IRS know that I’m putting money aside from my self-employment income and not from my regular day-job income?

Answer: To answer your last question first, the IRS doesn’t really care where the money comes from when you pay your tax bill. It mostly just cares about getting paid.

That said, you probably won’t be able to avoid self-employment taxes on your side business income, although you should be able to reduce or even eliminate owing income taxes on the money, said Eva Rosenberg, an enrolled agent who writes about taxes at TaxMama.com. (Self-employment taxes are your contributions to Social Security and Medicare.)

“The only way to reduce self-employment taxes is to reduce self-employment income,” Rosenberg said. “Putting money into retirement plans of any kind will only reduce income taxes.”

One way to reduce your self-employment income is to incorporate and then have your corporation contribute to your retirement plan directly, “thus wiping out most of your wages,” Rosenberg said. “However, the cost of incorporating and the annual filing and fees related to all that will certainly exceed your self-employment taxes on $7,000.”

What might make more sense if you want to reduce your income taxes is to contribute the maximum $5,000 to a traditional IRA, which offers a tax deduction for contributions, instead of funding a Roth, which does not. Even though you have a retirement plan at work, you can deduct your full contribution if your modified adjusted gross income is under $56,000.

Another option is a solo 401(k), which would allow you to put aside up to 100% of your compensation (although again, you would still owe self-employment taxes on that compensation).

Also, if you expect to owe more than $1,000 at tax time, you should be making quarterly estimated tax payments instead of waiting until April 15 to pay your tax bill.

Answer: Actually, the reader followed up to say her supporting paperwork eventually made its way to her mailbox. The return itself, as noted in the column, was electronically filed without her permission or review.

Whether there’s a software glitch or simply overworked preparers making mistakes is unclear. But these experiences do highlight the risks of using the U.S. mail for sensitive information. Here are another reader’s thoughts on the subject:

Dear Liz: As a tax preparer, I deal with clients who live 100 or more miles away, and I have never had a problem with mailing of documents in either direction. Perhaps they may be delayed somewhat, but they have always arrived. As to the issue of the preparer filing electronically without permission, the IRS mandates that a return can be filed electronically only after the preparer receives the taxpayers’ approval (IRS Form 8879 must be signed by the client). Therefore it appears that the tax preparer in this case may have acted in a manner not acceptable by taxing agencies. This is something taxpayers should be wary of in dealing with tax preparers.

Answer: That’s definitely true, but perhaps you should consider being a little more wary of the mail system. Just because nothing has happened yet to all that sensitive data doesn’t mean something can’t or won’t. It may cost a little more, but if your clients can’t drop off information and pick it up themselves, paying for delivery services that offer tracking information is a way to make these transactions more secure.

I typed in $3,477.22, which is the federal tax burden for a family of four exactly in the middle of the income spectrum (with a household income of $75,594). Here’s where their tax dollars go:

• Social Security: $711.09
• Defense: $701.43
• Medicare: $454.39
• Low-income assistance: $322.86
• Medicaid: $274.44
• Net interest payments: $229.90
• Unemployment compensation: $163.14

Way down at the end of the list are some other expenditures of note, incuding $19.69 for foreign aid; $5.87 for Congress; and $2.55 for arts and culture.

This could give you some ammunition when your windbag uncle insists that the reason we’re broke is because of foreign aid, or when your annoying sister-in-law tries to insist that the deficit, and the interest payments we make on it, are no big deal.

Go ahead–get your receipt for taxes paid. It’s illuminating.

Answer: You’ve learned a couple lessons, foremost among them that you need a new tax pro. Filing your return without letting you see it was a definite no-no.

Another lesson is that your private financial data probably shouldn’t be entrusted to the U.S. mail system. It’s more secure to drop your documents off with your tax preparer and pick them up yourself, along with a copy of your return, when he or she is done. The original return can be electronically filed using the IRS’ secure, encrypted system, eliminating the need to use the mail.

You can put 90-day fraud alerts on your credit reports at the three major bureaus (Experian, Equifax and TransUnion). Fraud alerts notify lenders that they should take extra steps to verify identity before opening accounts in your name. For more protection, you may want to consider a credit freeze, which doesn’t rely on lenders’ sometimes-wavering vigilance but that allows you to shut off access to your credit reports, preventing thieves from opening new credit accounts. For more information, visit the Consumers Union site www.financialprivacynow.org.

Answer: You’ll need to talk to the executor of your dad’s estate.

Here’s why. When there is an estate tax in place, the assets in people’s estates get “stepped up” to their value at the time of the person’s death. This is a huge boon to the vast majority of estates. Most people’s estates don’t owe estate taxes, but they still get this favorable tax treatment so that no tax is paid on the gains that occurred during the person’s lifetime.

When the estate tax disappeared for 2010, the step-up rules changed as well. Each estate instead is allowed $1.3 million of step-up, which the executor can allocate any way he or she wants, said estate attorney Burton A. Mitchell of Jeffer Mangels Butler & Mitchell in Los Angeles, although no asset can receive a step-up that’s more than its fair market value.

If your father’s estate had less than $1.3 million of unrealized capital gains, then all of your inherited portfolio gets a step-up in tax basis. If the gains exceed that amount, however, some or none of the portfolio would get the step-up, depending on the executor’s decision.

The executor has to file a form with the IRS outlining how the step-up is allocated. This form is due with the decedent’s final income tax return, Mitchell said.

Today’s Wall Street Journal has an article about how this Congressional inaction is giving the Treasury Department fits, since normally by now the Treasury would be preparing withholding tables for employers–and nobody knows what the right withholding will be.

But the real story is contained in the graphic that accompanies the article, which shows how much your income taxes are likely to go up if Congress fails to act and the tax breaks expire:

• A household making $40,000 would see its paychecks shrink by $95 a month if it had no children, $135 if it had one child and $165 if it had two children.
• A household making $80,000 would see its monthly paychecks shrink by $145 with no kids, $150 with one and $180 with two.
• A household making $100,000 would clear $270 less per month with no kids, $300 less with one and $335 less with two.

I can’t imagine that anyone in today’s economic climate would be happy to see his or her paycheck shrink by that much.

You might want to let your lawmakers know how you feel. You can find your congressional representative here and your senators here.

Some locations also will offer secure disposal of cell phones and computers (although one security expert I interviewed said the most secure way to dispose of a hard drive is to bash it with a hammer).

Don’t have a location near you? Saturday is still a good day to shred old documents, now that those tax returns are out of the way. You can buy a decent cross-cut shredder for as little as $40, or get a really robust one in the $150+ range. Read “Purge your financial paperwork” for advice on what to keep and what to toss.

Answer: You may think owing an $11,000 tax bill because you saved $13,000 on a credit bill is bad enough. But the ironies just keep coming.

For many people, the best way to pay an IRS bill when they don’t have the cash is often by credit card or a bank loan such as a home equity line of credit. As the IRS puts it, “The interest rate and any applicable fees charged by a bank or credit card are usually lower than the combination of interest and penalties imposed by the Internal Revenue Code.”

Given your situation, though, you may not have access to a low-rate loan. If not, you’ll need to work something out with the IRS.

If you owe less than $25,000, you can file online for a short-term (120 days) extension or a longer-term installment plan. The IRS penalty for nonpayment is 0.5% a month and the interest rate is 4% a year, or a combined rate of around 10% a year. There is a one-time fee of $105 for installment agreements, although that can be lowered to $52 if you agree to a direct debit from your checking account.

You’ll find more information at http://www.irs.gov/taxtopics/tc202.html.

Whatever you do, don’t use this problem as an excuse not to file your tax return, since the failure-to-file penalty (5% a month) is 10 times as much as the failure-to-pay penalty.