The Tax Man Cometh

Day 105 - Tax Day!
Image by brianjmatis via Flickr

Is the IRS after you?  Did you forget to file your tax returns for the last 10 years?  Are you worried that they are going to seize your bank accounts, leaving you broke and unable to finance your latest Pokemon acquisition?

There are many reasons people neglect to file their tax returns.  None of the reasons are good.  The usual reason is that you know you’ll owe money you can’t afford to pay, so you wrap yourself in denial and attempt to delay the inevitable.   For future reference, the government always wins.  Not filing is a temporary solution at best, and a really bad one at that.   Not paying just guarantees that you will owe more penalties than if you had filed and gotten on a repayment plan.   Avoiding your tax return will come back to haunt you eventually.

If you haven’t filed your tax returns, you need to do so as soon as possible.   The longer you wait, the fewer options you have and the more likely the account seizures.   Keep your money under your own control.  Another problem with not filing is that the IRS will estimate your tax debt.   The estimate is always in their favor.   If you file, you get to list your deductions.  If you don’t file, they give you the standard deduction and ignore almost everything in your favor.   In some cases, this can mean they think you owe $10,000 when in reality, if you file, you will only possibly owe $1500.

To get started, you need to do is call the IRS at (800) TAX-1040.   This call serves three purposes.

First, you need to confirm which years you need to file.   Simply ask for the last year in which you have filed.

Second, request a transcript of all of your 1099s and W-2s.   These are the forms that your employers, investments, and banks have sent to the IRS detailing your income.   Over the years, it’s easy to lose paperwork, so this will ensure that you’re records match theirs.  Depending on the time of the year, you should have the files in under a week.  You’ll get one per delinquent year.

Third, this call gives you a chance to get on the “good debtor” list.   You may have to get transferred to the collections department, but make sure you get someone to update your file with the fact that you are making good on your taxes.  They will probably give you 30 days to file.  Treat this as a hard deadline.

[caption id="" align="alignleft" width="196" caption=" "] [/caption]Now that you have all of your paperwork, it’s time for the long slog.   You have to do several years worth of returns, generally in one or two sittings.   You can usually find back years of Turbo Tax on Amazon for cheap.  As of this writing, the back years are under $10 per year.   While you are filing, please keep in mind any charitable donations or business expenses you may have had.    If you are missing a receipt for a major business purchase, never fear!    The IRS does accept reasonable alternatives.   I know of one case of an individual writing a letter to the IRS that read:

To Whom it May Concern:

Please accept this letter as a receipt for the purchase of a snowplow in the amount of $3000.

If you do this, you had better be able to back it up with the existence of an actual snowplow.

After you prepare your returns, look at the amounts you owe.  You can only collect a refund for the last three years.   If you owe more than you can afford to pay, you have two option, payment plans or settlement.

Payment plans involve delayed or continual payments.  From

  • Request an Extension of Time to Pay — Based on the circumstances, a taxpayer could qualify for an extension of time to pay. The IRS is willing to allow extensions of time to pay in order to assist in tax debt repayment. A taxpayer can request an extension from 30 to 120 days depending on the specific situation. Taxpayers qualifying for an extension of time to pay of 30 to 120 days generally will pay less in penalties and interest than if the debt were repaid through an installment agreement. Taxpayers can request an extension of time to pay using the Online Payment Agreement option available on thisWeb site.

  • Apply for an Installment Agreement — The IRS may allow taxpayers to pay any remaining balance in monthly installments through an installment agreement. Taxpayers who owe $25,000 or less may apply for a payment plan electronically, using the Online Payment Agreement application. Alternatively, taxpayers may attach a Form 9465, Installment Agreement Request, to the front of their tax return. Taxpayers must show the amount of their proposed monthly payment and the date they wish to make their payment each month. The IRS charges a $105 fee for setting up an installment agreement. The fee is reduced to $52 for those who establish a direct debit installment agreement and $43 for those with an income below a certain level (for more information, see Form 13844). Taxpayers are required to pay interest plus a late payment penalty on the unpaid taxes for each month or part of a month, after the due date that the tax is not paid. A taxpayer who does not file the return by the due date — including extensions — may have to pay a failure-to-file penalty.

The IRS must accept your payment plan if your tax debt is under $10,000 and your proposed plan will pay it off within three years.

The other option is a settlement, or Offer in Compromise.  Generally, only 10-15% of such offers are accepted.  The IRS will rarely accept the off if they feel they can collect the debt for less than the amount owed.  Don’t believe the guys on TV who pretend it is an effortless solution.  From, the three acceptable reasons for OIC are as follows:

1. Doubt as to Collectibility – Doubt exists that the taxpayer could ever pay the full amount of tax liability owed within the remainder of the statutory period for collection.

Example: A taxpayer owes $20,000 for unpaid tax liabilities and agrees that the tax she owes is correct. The taxpayer’s  monthly income does not meet her necessary living expenses. She does not own any real property and does not have the ability to fully pay the liability now or through monthly installment payments.

2. Doubt as to Liability – A legitimate doubt exists that the assessed tax liability is correct. Possible reasons to submit a doubt as to liability offer include: (1) the examiner made a mistake interpreting the law, (2) the examiner failed to consider the taxpayer’s evidence or (3) the taxpayer has new evidence.

Example: The taxpayer was vice president of a corporation from 2004-2005. In 2006, the corporation accrued unpaid payroll taxes and  the taxpayer was assessed a trust fund recovery penalty as a responsible party of the corporation. The taxpayer was no longer a corporate officer and had resigned from the corporation on 12/31/2005.  Since the taxpayer had resigned prior to the payroll taxes accruing and was not contacted prior to the assessment, there is legitimate doubt that the assessed tax liability is correct.

3. Effective Tax Administration – There is no doubt that the tax is correct and there is potential to collect the full amount of the tax owed, but an exceptional circumstance exists that would allow the IRS to consider an OIC. To be eligible for compromise on this basis, a taxpayer must demonstrate that the collection of the tax would create an economic hardship or would be unfair and inequitable.

Example: Mr. & Mrs. Taxpayer have assets sufficient to satisfy the tax liability and provide full time care and assistance to a dependent child, who has a serious long-term illness. It is expected that Mr. and Mrs. Taxpayer will need to use the equity in assets to provide for adequate basic living expenses and medical care for the child. There is no doubt that the tax is correct.

If you have a settlement accepted, you have three options for payment.  A lump-sum payment must be paid in 5 installments or less, a short-term payment plan may be paid over 2 years, and the long-term repayment option has no set payment.   Each of these options must meet differing levels of potential repayment, including figuring your real assets(your house and investments).  In addition, you must include a non-refundable first payment and a $150 application fee when you apply for the settlement.

No matter which option you take, you can’t run from government debt.  It will catch up to you and that will always be more painful that dealing with it on your own terms.

Update:  This post has been included in the Carnival of Personal Finance.

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The Friday Tax

I’ve been at the doctor’s office every time my kids have been scheduled to get shots.   I let them know what to expect before the shot, hold their legs still during,  and comfort them after.   It’s not pleasant, but it is a bonding experience.  It builds trust. My kids know that if I tell them something won’t hurt, it won’t, because I tell them when it will.   Unpleasantness is never a surprise.    Somehow, this policy hasn’t led to a fear of the doctor.  They always know what to expect and how tough I’m expecting them to be, so they don’t worry.

Last Friday, it was time for the unpleasant duty. Both of the girls had checkups and one was due for shots.   I took the afternoon off to meet my wife and kids at the clinic.

It was a beautiful day.  It was warm, the sun was shining, and traffic was light.  The windows were down and music was playing; it was an almost perfect start to the weekend.

Did I mention I have a lead foot?

“No, honey, I don’t think we need to buy that” certainly loses some of it’s effect shortly after “Uh, honey?  I just paid the voluntary driving-too-fast tax.”

For days, I heard,  “Well, I wasn’t the one who got a speeding ticket!”   This sounds like nagging, but it’s not.   I am normally the one issuing reminders about spending and saving.   This time, it was her turn.   It’s not my job to hold her accountable.   It’s our job–jointly–to hold each other accountable.   If I mess up–and I did–she is perfectly within her rights to hold me feet to the fire. I certainly don’t hesitate when the roles are reversed.

I haven’t had a ticket in almost 12 years, so this isn’t a habitual problem.    It is an expense that should have been avoided.

Now, I’ve got to take a day off of work and go to court to try to keep it off of my record, so it won’t affect my insurance rates.   That means court costs on top of the fine.

Monetary weakness or a lapse in judgment can  derail goals.    We haven’t destroyed our budget for the month, but it’s not an insignificant amount of money.  I try figure enough padding into our budget that this isn’t painful, but it is money that could have been “snowflaked” onto our debt. It could have meant another $150 in the vacation fund.   That is disappointing.

It’s time to establish the habit of driving the speed limit.

Update:  This post has been included in the Money Hacks Carnival.



It’s almost time to pay Uncle Sam for the privilege of living in the US.


Tax (Photo credit: Images_of_Money)

Since my business partner and I just finished our corporate taxes last week, I thought it would be a good time to finish my personal taxes.   I’ve got a relatively complicated tax situation.   I’ve got personal taxes, my side-hustle taxes, and our side-hustle taxes.   I had my side hustle taxes done and my personal taxes were just waiting for the final numbers from our corporate filing.   We’re an LLC, run as a partnership, filing as an S-Corp.

I was all set to get about $100 back from my personal and side-hustle #1 taxes.  That’s a perfect tax year.   No more money out-of-pocket and no free large loans to the government.

Side-hustle #2 ruined that.   It started taking off in September, so we’d never paid any estimated taxes.   When I added those numbers in, I owed a bit under $2000.

Ick.  I hate owing.

Thankfully, I set aside 25% of all of my side-hustle income just to cover this.

It was still too much.   What could I do to lower my tax bill?


I’d only contributed $100 to my traditional IRA last year.   Contributions are tax deductible and you can make them until April 15th of the following year.

That’s great.  I had money sitting in a savings account, earmarked to get wasted by the government, and I had an unused tax deduction that I could still contribute to.

That got it down to a $1000 tax liability.

Was there more?  What could I do?

When I paid off my car last year, I started sending half of my car payment to an account earmarked for the next car.   I had $1700 sitting there, so I sent $1200 of it to my IRA, leaving $500 to hopefully cover any car repairs that come up.    Hope isn’t a good financial strategy, but I’ve also got a straight brokerage account that’d doing pretty well, so I can cash that out, if necessary.

Down to $800.

Contributing a bit over $3000 to my retirement saved me more than $1000 right now.   That’s sweet, but I still owed money.

Did I miss something on my first side hustle?

$67 to oDesk?  How did I manage to keep my annual oDesk bill down to $67?   I had a full-time guy in the Philippines for a while last year, and I regularly hire writers for my niche sites.

So I hit oDesk and ran some reports.   I was off in that deduction.   By $2400.  I have no idea where that $67 came from.   Including it dropped my side-hustle profit considerably, and brought my total tax bill to a net $7 refund.

There is a reason I never file my taxes as soon as I finish with Turbo Tax.  I always wait a week or two, and I always come up with something I missed.   This time, the wait saved me nearly $2000.

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Charity is Selfish

I try to give 10% of my income to charity.   I don’t succeed every year, but I do try.

I don’t give because I’m generous.  I give because I’m selfish.

If you give to charity, you are too.

I’m not talking about people who give to charity strictly for the tax deduction, though that is selfish too.   I’m referring specifically to the people who give to charity out of the goodness of their hearts.

If I give a thousand dollars worth of clothes to a homeless shelter, I get a warm fuzzy feeling knowing that I helped people stay warm.

If I send $100 to the Red Cross for whatever terrible disaster happened shortly before I made the donation, it makes me feel good to have contributed to saving those lives.

The put-the-inner-city-kids-on-a-horse thing we do?  Makes me happy to get those kids into a positive situation.

Donating blood?  Yay, me!  I’m saving lives!

While it’s nice to help other people, that’s not the ultimate reason I’m doing it.  I do it because it makes me feel good about myself to help other people, particularly people who–for whatever reason–can’t help themselves.

That’s the basis of altruism.   It’s not about helping others, it’s about feeling good about helping others.

The truly selfish, the evil dogooders, are the ones who want to raise taxes to give it away as “charity”.   They get to feel like they are doing something and helping others while not actually contributing themselves and, at the same time, stealing that warm fuzzy feeling from the people who are providing the money to start with.


Charity has to be done at  a personal, local level or the benefits to the giver are eliminated while the benefits to the receiver are lessened.  Bureaucracy doesn’t create efficiency.

For the record, if it’s taken by force, by tax, it isn’t charity.  Charity cannot be forced.   Forcing charity is, at best, a fraudulent way for petty politicians, bureaucrats, lobbyists, and activists to feel they have power over others.

Again, evil.

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