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Author: misssteak One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 308225  
Subject: Where to start when your debt freaks you out Date: 7/9/2006 4:52 PM
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Hi,

After reading these boards for a bit and seeing all the support and information being exchanged, I am *perhaps* *maybe* feeling ready to ask for help getting my finances in order. If this is the wrong board for this topic, please let me know!

I'm 30 and am *just* beginning to learn how to take care of myself finacially (skills that no one in my family had; in fact, taking care of yourself financially was seen as BAD because, to my hippie artist parents, I guess it meant you were materialistic and spiritually bereft?!). My debts include about $10k student loans, NO credit card debt (as of only 1.5 years ago), and an $8000 car loan, all of which are current and I am paying.

The part that's freaking me out is this: when I started my job in 2004, I worked as an independent contractor for six months. Of course, I didn't put away the SE tax that I knew I was going to have to pay, so when tax time came, I ended up doing my taxes sort-of, realizing that I had about $6k to pay, filing an extension and paying about $1000 of the estimated balance. Normally in my work I would have expected a bonus of about $6000 July 1 this year, which I was planning on paying all to the IRS and setting up payments for what is left over (with fees and interest and whatever else I'm sure it's more by now). Well, my bonus is delayed till December, and even though I feel awful and guilty and kind of ashamed of having let it go this long, I want to get this taken care of. I don't know where to start though; I haven't even done the taxes because I thought I might be able to itemize (from what I have learned I don't think this is worthwhile). The idea of getting all the paperwork out kind of makes me want to barf. My fear of going to a tax professional is that they will just chastize me for not taking care of this, but I know that I need help.

Just reading though these boards has been comforting, inspiring and educational. Any ideas where I should start, or words of wisdom?

Thanks!!

Steak
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Author: Windowseat Big funky green star, 20000 posts Top Favorite Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 231432 of 308225
Subject: Re: Where to start when your debt freaks you out Date: 7/9/2006 5:01 PM
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Hi Steak,

Welcome to the board.

First and foremost, have you communicated with the IRS about your plans to pay? They can be very helpful if you tell them your plans and offer payment over a period of time, and extremely hostile if they think they're being ignored.

Also, there's a board called Tax Strategies:

http://boards.fool.com/Messages.asp?bid=100155

and they might be of some help as well. TMFPMarti used to work for the IRS, so he's very knowledgeable.

And congratulations for trying to do better with your money than your parents did. Keep it up.

Nancy

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Author: fredinseoul Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 231433 of 308225
Subject: Re: Where to start when your debt freaks you out Date: 7/9/2006 5:08 PM
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Well, what is more fearful? Taking care of this or ending up losing all of your worldly poessseions because the IRS comes after you? I'd take out the paperwork and start getting organized. As you have pointed out, not doing this isn't helping. So, do something that will help.

You actually have all the tools to take care of this yourself. There are tax programs you can buy to help organize your stuff. You have your paperwork. Pull it out and get started.

If you really think that doing this is not within you, go to the tax guy. He/She won't yell at you. You are the ideal customer, you don't know what you are doing and he can charge you to do something which is really easy. Yelling at you would make you find someone else. He/She would lose money that way.

If you want to do this your self, I have a couple of ideas.

One option is to contact the IRS and set up a pay plan. IF you contact them and work with them, they can be quite forgiving. As long as you make an effort and pay them, they will set up a payment plan with you.

Another option is take out a loan, pay off the IRS and then pay back the loan.

Either way, you are going to pay interest.


The other thing I would suggest is to start saving for your 2006 taxes now, if you haven't already. You had a $6,000 tax bill last year, what will it be this year? Start saving now, don't count on your bonus. It didn't come through, it may never come through. Build your taxes right into your planning. Set up a bank account that you put 15%(or whatever you need) into each time you get paid. Then, your taxes will be taken care of.

Good luck

fredinseoul



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Author: BklynBorn Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 231435 of 308225
Subject: Re: Where to start when your debt freaks you out Date: 7/9/2006 6:15 PM
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Welcome, ms.steak!

Sounds like you are in the right place.

This is going to sound very weird: Let the IRS help you.

A couple of years ago, one of my clients mis-reported my income from them as $66,000 instead of $66. Net net: the IRS scrutinized the rest of my return and found a couple of errors and things put in the wrong place, etc. Nothing criminal, but I ended up owing $1,500 more. Ack!

They sent me a bill. At the time, they might as well have sent me a bill for $1,500,000. I had a secret E-fund (hidden from my abusive husband) and NO WAY was I going to touch it.

I considered a few options: tracking down the yoyo who ratted me out (the client) and forcing them to pay it: mmm...no. Not filing for the rest of my life: hmmm...nah. Throwing myself on the IRS's mercy: sigh.

SO I called the number on the bill. I was assigned a CSR who helped me through the whole process: made a plan, any questions, etc.

Three big benefits: (1) I stopped sweating and shaking. (2) The clock stopped on the fine; interest yes, but no more penalty. This is not automatic but the rep had the authority and did it. (3) I stopped thinking about it 24/7. I'm really glad I did it that way. The whole thing was taken care of within a year.

http://www.irs.gov/businesses/small/article/0,,id=108330,00.html

BklynBorn

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Author: misssteak One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 231436 of 308225
Subject: Re: Where to start when your debt freaks you out Date: 7/9/2006 6:37 PM
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Thank you all for your replies! I certainly am doing better than my parents, who owed the IRS something like $40k at one point, and ended up declaring bankruptcy. No thank you!

Fraternizing with the IRS?! My parents will NOT approve! And that's where it's nice to be a grown-up I guess; my priorities are to myself now. I'm guessing I have to file before I get the bill?

Rough-order-of-magnitude: how much above the actual tax amount do you think you ended up paying for penalties and interest?

Steak

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Author: BklynBorn Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 231438 of 308225
Subject: Re: Where to start when your debt freaks you out Date: 7/9/2006 9:37 PM
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Hmmm... I really don't recall. Doesn't matter, though... the interest is different -- changes every quarter, pegged to the Fed rate. You can probably figure out the whole thing on that website I included in my post.

Yes, you need to file. ASAP. Because if they come across something NOT from you, then follow the trail, and find out that you did not file, they will probably be more averse to waiving the penalty. So for that purpose, just take a stab at it yourself. Don't go hunting around for the perfect CPA. You can do that later. For now, just sit down, fill out a 1040 the best you can, and send it in with any other documents you have. I've done that a couple of times when I was overwhelmed, and I'm really glad I did. Good faith counts for a lot with the IRS these days, since they've been working on customer service so much (and probably because they encounter so little good faith...).

I don't know why, but I sense a perfectionist in the SteakHouse! Correct??

BB

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Author: aj485 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 231449 of 308225
Subject: Re: Where to start when your debt freaks you out Date: 7/10/2006 12:41 AM
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misssteak....

As your first priority, you need to get your taxes done, so you can talk with the IRS about setting up a payment plan. I don't believe that they will talk with you about a payment plan if you have not completed your filing. Because you filed an extension, you are avoiding the 'failure to file' penalty for now, but you will still be charged a 'failure to pay' penalty from April 15th on at 0.5% of the tax owed per month. And there is interest besides at the federal short term rate + 3%, so it's probably 8% or 9% now, but it changes every time the Fed changes rates.

Here is information on the penalties and interest: http://www.irs.gov/taxtopics/tc653.html

You probably want to take a gander at the Tax Strategies board.

If you have no idea about what deductions you can take as a self-employed person, you probably need to seek a professional's help, as there are a lot of things that you can deduct.

AJ

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Author: mastiffmama Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 231467 of 308225
Subject: Re: Where to start when your debt freaks you out Date: 7/10/2006 10:54 AM
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My fear of going to a tax professional is that they will just chastize me for not taking care of this, but I know that I need help.

I'd guess that tax pros see people all the time who are too overwhelmed or disorganized to file on time. The fact that you filed an extension probably will make them think you're at least somewhat responsible. They won't chastise you, they'll be happy to have more work in a slightly slower time of the year.

Besides, who cares what they think as long as they get the job done?
mm

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Author: BklynBorn Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 231470 of 308225
Subject: Re: Where to start when your debt freaks you out Date: 7/10/2006 11:07 AM
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Hi steak,

Here are clear directions from the IRS on "What to do if you can't pay your taxes."

http://www.irs.gov/taxtopics/tc202.html

BklynBorn

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Author: exoticatom One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 231788 of 308225
Subject: Re: Where to start when your debt freaks you out Date: 7/13/2006 8:14 PM
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The part that's freaking me out is this: when I started my job in 2004, I worked as an independent contractor for six months. Of course, I didn't put away the SE tax that I knew I was going to have to pay, so when tax time came, I ended up doing my taxes sort-of, realizing that I had about $6k to pay, filing an extension and paying about $1000 of the estimated balance.


You really do need to see a bean counter who knows the ins and outs of self-employed contracting, which should be just about any reasonably experienced tax preparer. There are lots and lots of deductible expenses available that you do not know about, which come off the top of your gross, and which will save you lots of tax $.... even without getting too aggressive about interpreting things, which in your case might not be as good an idea as it usually is, given that you may be up for review here -

I've been consulting off and on for years, and give this advice to everybody I know who is starting out in this game - and everybody who has followed this advice has saved thousands!

Good Luck!

Bill

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