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 only update my net worth when I have to send the annual personal financial statement to the bank to comply with the requirements for a loan my partner and I have on a commercial building. However, now that I hope to approach my Mom in order to solicit help in the form of a loan for using for a back tax debt, I figured I should go ahead and get the numbers together along with my budget so that I could demonstrate my ability to pay it off.
The last time I filled out the statement was in mid-July when I had a certain positive net worth. It is more than my tax liability, but the problem is that the vast majority is held in real estate and retirement accounts that I can’t readily access. Unfortunately, I did too good a job of paying myself first, but it was at the expense of current cash flow. Obviously, I will have to learn from this mistake.
I was pleasantly surprised to find that in the previous six months, my net worth had increased just over 28%! It was a combination of increased balances in the retirement accounts and decreased debt.
Needless to say, I was quite happy. It is about time that I got a little good news. It has been a somewhat difficult month, although I am incredibly thankful for my overall position in life. The problems that I am dealing with are quite minor in comparison to what could be going on, so I am not going to complain too loudly.
Prosper Loan and Mom
I sent in the requested documentation for the Prosper loan which I am hoping will be funded to take care of some of my tax debt. I am so thankful for those who have already contributed. So far, the loan is 9% funded. Here is the link to my loan. The listing expires in a little over 10 days. I am somewhat concerned that it won’t get funded, but maybe activity will pick up again once all the documentation gives me a level 3 verification. When it is all said and done, I will be able to write a post on the experience so I am looking forward to that.
I also sent an email to my Mom a few minutes ago. I figure that I will get a preliminary reply tomorrow sometime. It was very difficult to swallow my pride and ask for help. I am very independent and have been since I was a teenager. I am sure that I will continue to be independent, but I am hoping to recognize those situations where it might benefit me to ask for assistance. Maybe that is a sign of increasing maturity? Who knows? It was difficult to write and send, but it is done. Now I will wait.
I hope that the next several weeks of posts won’t be dominated by tax discussions, but it is a matter that is front and center right now given my current situation and the time of the year. I trust that most of you will be having less angst when it comes to the IRS, but feel free to write a comment or two.
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Last Friday, I spent about 90 minutes on the phone with the United States Internal Revenue Service, much of the time on hold. I really didn’t expect that it would take that long seeing as the tax season is just getting started, and I doubt that there could be that many questions yet. Part of the problem is the fact that I am a “special situation”, although I think they might have changed names for that division.
You see, I owe some back taxes. And I really don’t mean some. It is a long story, and one that I am not quite ready to share. Let’s just say that some poor decisions on my part and the financial crisis of 2008 combined to lead to the fact that I owe enough for 2010 to qualify as a special situation. So in order to keep the IRS at bay, I have about 2 months to come up with just over $1000 per day. That will get my balance to the point where I would no longer be so special.
Problem Solving Skills
I like to tackle problems with solutions and come up with several options. In this case, I devised a plan A, as well as a plan B, C, and D. I wasn’t exactly expecting the short time frame, but was happy to have some time nonetheless. Plan A was to use the Lending Club and Prosper to come up with $60,00. I could easily put together the remainder in order to qualify for a payment plan. Well wouldn’t you know that the Lending Club lends to 42 states, but Indiana is one of the eight.
So I went to Prosper figuring a combination of plan A and plan B could get the job done. The process was fairly easy and quick, and I learned my credit score was 737. I am sure that isn’t the best, but I do have a high level of debt of which much is mortgage debt. It turns out that 737 is not high enough to qualify for the $25,000 maximum, but I could get $15,000 instead. I decided to go with it in case there are problems with some of the other plans that I have.
If you want, you can check out my Prosper listing. It is already 4% funded which I think is cool. Plus, I will have enough material for another post in a few weeks when I can review the entire process.
Moving on to Implement Plan B
Actually, plan D is probably going to move into the second spot. My wife suggested it, but I really wanted to avoid it which is why I was really hoping for plan A to work. I am sure that it will work without a hitch, and would be a win-win for both of us. The problem is swallowing my pride and going to ask my mom if I can borrow some money.
You see, my mom got an inheritance from her aunt almost 2 years ago. It has been sitting in a savings account earning less than 1% interest. We sat down to review all of her finances in November 2010 when my dad got suddenly severe with Alzheimer’s following shoulder surgery. He was in the nursing home for almost 2 months. I learned a lot about financial planning for medical costs at that time. Again more posts someday.
Anyway, she knows that some day when my dad (who is back at home) passes, she will need some added income for her budget since she will lose his pension. She needs more income from money just sitting around, and I could use a loan. Paying a reasonable 10% interest rate amortized over 5 years would accomplish both purposes. I am sure that she will help me out. The problem lies on me having to ask.
I am a very independent person, rarely asking anyone for help. It is a characteristic that has helped me get far and yet simultaneously holds me back. I am working to figure out how to balance those two extremes and using my drive to keep pushing while asking for help when necessary in order to create win-win type situations.
So I plan to put together my personal financial statement and a sample budget for my mom and sit down in the next few weeks to explain my dilemma. It is not something to which I am looking forward, and it will be very painful for me. But ultimately it will be the easiest and quickest solution given the time frame.
Plans C and D on Back Burner
That means I will be putting plans C and D on the back burner. Plan C involved using some personal collateral and going out to get a bank loan. I figured that I could probably come up with $35,000 in this manner and get the rest when taking some money from the 529 accounts (only earnings are taxed not the original deposits) and the Health Savings Account.
Having to sell a kidney is on the back burner as well (LOL)!
My problem is the fact that I have been a life long saver and underestimated the amount of liquidity needed to raise 6 kids. Next week, I will actually have 5 teenagers at the same time for several months. I have more than enough in my retirement accounts where I have been saving for over a decade and in real estate equity with rental houses to knock out my tax liability for 2010 and 2011. I started implementing two of the three branches of my retirement plan without paying close enough attention to the third.
Now it is effectively impossible to get at those funds. Obviously, I was a little naive thinking that it would be easier to access that money when needed. The good thing is that I do tend to learn from my mistakes and by making so many will have plenty of wisdom as I come over the crest of that mid-life hill.
So there you have another piece of my complex life to mull over. Advice? Don’t strain your liquidity by putting everything into retirement accounts and real estate because one day, credit may be cut off. Also, don’t let financial issues drag you down. I think I have kept a much better attitude with this problem than others I have dealt with in the past. There are much more important things in life so I will be keeping an upbeat attitude and let you all know how it turns out. Finally, if you want to borrow from the Lending Club, move out of Indiana.
If you want to loan to me via Prosper or just be nosy, feel free. Also feel free to comment or share your tax stories. I already got the lecture from the IRS dude, so you can spare me that.
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