Those words always seem to bring up negative feelings and connotations when I hear them as if someone hasn’t really sent you the money that they owe and are simply buying time to keep you from hassling them. I had a renter who was real good at saying those words. Interestingly enough, the postmark was always a day or three later from our initial conversation. Needless to say, I wasn’t too disappointed when he moved out.
But now those words are taking on a different meaning for me. I am saying them myself and am actually pleased to be saying, “The check is in the mail.” That’s because I am the one sending the check. And the recipient is the IRS.
This morning I was able to make out the last check payable to the United States Treasury that I will have to write for the tax years of 2010 and 2011. From now on, I am planning on being caught up and putting this ugly chapter of my financial life behind me. I am not quite ready to discuss how I got myself 6 figures in the hole, but it wasn’t pretty. However, I can say that I have learned from my mistake and continue to learn daily.
I ended up having to cash out my retirement accounts from a previous employer (I still have a newer account). My accountant sent in the money for the taxes and the penalty and deductions this year should have kept up with any tax liability for 2012, so I am hoping that I will never have to owe that much in my life again.
Even though the check was quite large, I had a big smile on my face and feel much relief. Now it is time to tackle some other debts and see what I can get done over the next few years. Paying off debt should free up some funds in the budget and allow me to make some positive progress in net worth even if I am not investing a lot in assets. Instead I will be paying off liabilities and increasing my cash flow and net worth from that side of the equation.
Tracking My Progress
I plan on starting a new blog to help track my progress and bring some public accountability to my actions. I ordered the domain name this evening and am having Andrea from Nuts and Bolts Media help out with getting the site looking good along with all the other mundane things that I figured out I don’t want to do. I would much rather write. Not that I am the greatest writer, but I enjoy it so much more.
Once the site is up (hopefully by 2013), I plan on making a post or two per week. I can explain some more about my goals for debt reduction over the next few years and you can follow my progress if you wish. I am looking forward to it, especially the part about paying off debt. By knocking out the IRS debt and a few others, my monthly expenses are less than my income on paper at least.
And thus ends four years of contacting the IRS and spending hours on hold and getting transferred from department to department to explain myself and keep the hounds at bay. Just think of all the extra time I will have.
Readers: Ever been in debt to the IRS?
On a more pleasant note….
Here are some of the carnivals in the past few weeks that have included some of my content:
I know this isn’t the typical tax season, but it is for me. For the past several years, I have gotten an automatic extension so that I don’t have to file until October 15th. Since I will be leaving the country toward the end of September, I have a self imposed deadline to get all the information to the accountant before I leave, which means that I will be working to get all the information and data together in the evenings this week.
I already have most of the information gathered from the rental real estate. Now I have to get some stuff together related to the usual 1040 stuff. I would say I am about halfway done and will be hitting it quite hard tonight.
I don’t necessarily like to procrastinate, but it did become a necessity a few years back and I haven’t been able to fully recover yet, but that issue should get resolved this year.
I certainly don’t enjoy having to spend so much time putting all the information together in a format that is easy for my accountant to work with, but the effort is definitely worth it.
Communication and Knowledge is Important
Even though I have an accountant fill out all the forms and prepare my taxes, I learned several years back that it is important to know the tax code (as best as it can be known by any individual) and to communicate your situation effectively. It is also important to have a rough idea of what you might owe and why.
After getting my taxes back one year, I was surprised to see that I owed more that what I thought I should given my circumstances. It turns out that the accountant had forgotten about a special circumstance that entitled my wife and I to more deductions than was actually figured into the numbers. We ended up sending in an amended return.
Also, we had one year where we were hit with a failure to file penalty which was absolutely not true. We had an extension which had been filed appropriately. A simple call to the accountant resolved this issue, but had I not paid close attention, the outcome may not have been pleasant. Again, knowing what I should owe has helped with some of these human errors.
Fortunately, my situation hasn’t changed much over the past several years, so it is easy to know what to expect. Also, I try to read a lot about taxes and know what is changing from year to year. I am concerned about the potential impact of the fiscal cliff as a result of changes in the tax code and on government spending and have been trying to pay off debt knowing that we might be entering another recession.
I doubt many of you have been focused on taxes this month, but what are your thoughts on the fiscal cliff. Doing anything to prepare?
When it turns out that you owe a lot of money to the IRS, it is best to save money on taxes in any way possible. One of the ways for me to do that is by getting the most out of my tax saver benefit (TSB) plan at work.
What is a Tax Saver Benefit (TSB) Plan?
At our place of employment the TSB is a flexible spending plan that allows employees to set aside pre-tax dollars for use on either child care during the year or medically related expenses that aren’t covered by insurance such as deductibles and co-pays. Some employers may refer to these plans as flexible spending accounts or plans or “cafeteria plans”.
For 2012, the maximum that we can contribute is $6,000 for either child care, medical expenses or a combination of both. Since my wife stayed at home when the kids were younger and now we don’t need child care, we have always selected the medical expense option.
The difficulties associated with these plans is that you have to use the money or you would lose it. So it is imperative that an accurate assessment of needs during the upcoming year be made since the anticipate payroll deductions are determined each fall for the following year. This is different from a Health Savings Account (HSA) in which the money will roll over from year to year and can be invested as well.
Speaking of the HSA…
It used to be that I didn’t have a Health Savings Account at work, but now that it is available, I have signed up for that plus a high deductible health plan. Because I have an HSA, the impact on the TSB is a little bit tricky. I can no longer use the TSB for co-pays or other medical expenses. That is what the HSA is for. Instead, the TSB is basically for eyes and teeth now.
Having six kids means a fair amount of dental work and routine care during the year, so I am able to take advantage of the TSB and save some money on my taxes. Believe me, every bit helps.
Now this year, in order to maximize the benefit that I am receiving, I called the orthodontist in November before the enrollment period to estimate my costs for this year and set aside that amount plus a little bit extra. The kids are getting into that age where they are getting braces so it is relatively easy to figure out the costs that will be incurred in 2012. I plan on doing the same thing for the next year since the last 2 kids are getting close to that age.
In the meantime, thanks to our relative health, I have been able to put away money in the HSA for later and not use any of it over the past several years. Ultimately, the plan is to have it available should I need my knees replaced like my dad. They swell when I run and are often sore, but I am getting along and hope to put off any significant procedures as long as possible.
Readers, do you have a flexible spending plan or health savings account to set aside pre-tax dollars for later use?
- Flexible Spending Account: Are You in the Sweet Spot? (bargaineering.com)