Update on Income Tax Situation

Someone asked not long ago what was happening on the income tax front.  For those of you who might be unfamiliar with this part of my financial life, I owe some money to the IRS, and it is not just a little bit.  It is quite a lot as a matter of fact.  The funny thing is:  I have the money but it is illiquid in real estate and retirement accounts.

In the current financial environment, it is impossible to borrow money at the bank.  Believe me, I tried.  Instead I had to come up with another plan which involved borrowing money from individuals so I could avoid paying more taxes plus a nasty penalty on funds withdrawn from a retirement account.  Yes, I am a little like Greece and kicking the can down the road, but I think that things will be getting better.

The Plan

The ultimate plan involves three steps.  First, borrow money from Prosper.  I did that and the money has already been deposited in my account.  I was a little disappointed that I didn’t qualify for the maximum $25,000, but I am pleased with what I got.  I will be writing a post about my experience soon if not on Monday.

The second part of the plan ended up involving swallowing some pride and asking my mom for a loan.  I knew that she would help me, but it was mighty tough to ask for it.  I am fairly independent and strong willed so I really didn’t want to ask except as a last resort.  I figured that compared to the tax and penalty alternative of tapping the retirement funds, this was as close to the end as I wanted to get.

We met with the lawyer yesterday and got the promissory note signed.  I also got the check and took it to the bank for deposit.  Everything is going smoothly and I will repay both my mom and Prosper over the next five years.

The last part that needs to be completed is to mail a big check to the Internal Revenue Service in the next two weeks and then ask for a monthly payment plan to take care of the rest of the balance.  That will take care of the 2010 Federal taxes.  I should be able to have the remainder paid off by the end of the year.

Future Tax Years

I will still have 2011 taxes to pay, but I might have some more options over the next several months.  The first item of business is to finish 2010 and make sure that I have the cash flow to get by month to month.  Of course, I will have to see what life brings.  No matter what happens, the 2011 taxes will be the end of the whole ordeal since 2012 is being paid as we go.  There should not be any balance at all for this year.

After that, it will be time to get crazy aggressive on debt.  I have already been able to pay off a few debts and am working on paying off the Discover Card currently.  Using extra income from blogging has been a big help allowing me to make bonus payments of several hundred dollars at a time.  Hopefully, I will be able to get the Discover Card paid off by the end of the year at the latest.

Needless to say, the whole situation is unpleasant and not one that I would wish on anybody but things could always be worse.  I am thankful for what I have and my health and family.

I am also especially thankful to all of you readers.  Thanks for taking the time out of your busy lives to read what I have to say and to go through this journey together with me.  I derive much inspiration and encouragement from your presence and comments.

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