Anyone in debt to the IRS

[Georgetown HB Mom]

My husband is an independant contractor and I am self-employed. We are in debt to the IRS every year. We are on an installment agreement and make our payments on time every month. We have to pay so much that we can not afford to send in quarterly payments. Hopefully this will change in the next two years but for right now we are stuck. What really ticks me off is that the new guy in charge of the IRS who was appointed by Obama did not pay taxes for two years and he is not being charged interest or penalties. What is up with that? Anyone else in debt to the IRS? How do you plan to get out of it? Any advice?

Thanks,
Lisa

[Denvergirlie]

I was an IC for a long time, thus had to pay my own taxes.
First few years, I just slowly paid back the IRS with monthly payments.
Then I got intense and started to save 30% of my gross pay in a separte savings account to put away my own taxes so it wasn't so shocking at the end of the year.

Yes, it stinks to put that money into savings, but it was even worse to have to owe the IRS for so long after tax season.

[shayinme]

Sadly I am in the same boat as you, my dh has been self employed going on 7 years. The first few years he barely made enough to live on so we fell behind with taxes, now we are on the hampster wheel where the monthly payments are so high its hard to stay current. The issues with the back taxes for us is that the interest and penalties are so high and constantly accruing that its hard to catch up.

I have been dealing with this for years, I recently went back to a traditional job since I was self employed as well and it was killing us. Right now our only saving grace is that dh is earning less so that means less taxes as far as the current ones. As far as the back ones, we are starting to seriously consider an offer in compromise because we are tired of always being behind.

I feel your pain and like you hearing that the new head of the Treasury had had tax woes really rubbed me the wrong way....where is my benefit of the doubt?

[Seasons]

Can I ask a question? How did the IRS find you and assess the back debt? Did you just voluntarily file a return and tell them what you owed?

I ask because a friend of mine (no, really, NOT me, I'm so straight on taxpaying I could never do this) and her husband are self-employed and haven't filed a tax return in YEARS. She says they owe so much by now that she can't fess up to IRS. The two are their only employees, with no outside accountant, so they don't create 1099s (or W-2s). Theirs is a service business, and so other businesses pay them fees.

Is there any chance they'd get caught? Again, it's been years, so maybe not? She knows failing to pay taxes is wrong, so it's not like a lecture from me would change things. I just care a lot about her and wonder if disaster is coming. They don't have any savings to pay an IRS bill.

[shayinme]

Originally Posted by Seasons

Can I ask a question? How did the IRS find you and assess the back debt? Did you just voluntarily file a return and tell them what you owed?

I ask because a friend of mine (no, really, NOT me, I'm so straight on taxpaying I could never do this) and her husband are self-employed and haven't filed a tax return in YEARS. She says they owe so much by now that she can't fess up to IRS. The two are their only employees, with no outside accountant, so they don't create 1099s (or W-2s). Theirs is a service business, and so other businesses pay them fees.

Is there any chance they'd get caught? Again, it's been years, so maybe not? She knows failing to pay taxes is wrong, so it's not like a lecture from me would change things. I just care a lot about her and wonder if disaster is coming. They don't have any savings to pay an IRS bill.

In our case we do and did file our taxes every year on time, just didn't have any money to pay for the first few years. So we were always on their radar. Even though I have tax debt which sucks, its my understanding that the penalties for not filing are even greater than when you file but just don't pay.

Since I was in school and applied for financial aid, not filing was never an option. Honestly if I were your friend I would get an accountant and a tax attorney and start filing those back years, I would be scared that one day the IRS would come down hard. I don't mind being open but even though we filed it was still a nightmare early on...the IRS is not someone to play with IMO.

Shay

[Seasons]

Originally Posted by shayinme

its my understanding that the penalties for not filing are even greater than when you file but just don't pay. ...Honestly if I were your friend I would get an accountant and a tax attorney and start filing those back years, I would be scared that one day the IRS would come down hard. I don't mind being open but even though we filed it was still a nightmare early on...the IRS is not someone to play with IMO.

Shay

Shay, how could the IRS even guess what my friend & her hubby owe, though? If they don't prepare 1099s? And probably don't separate business from personal bank accounts, or really keep track of accpunts receivable (that their clients pay them, once they've paid)? COULD they really slip off the radar? Esp if theither is employed outside their own business? (And possibly they haven't ever paid taxes while they've had this business - 5+ years - but I dunno for sure.)

I am definitely worried that my friend will get audited, and then - after lots of investigation - get hit with a huge bill. On the other hand, maybe she's right that they are not on the IRS's radar because they've never filed for what they owe. (In which case I'm a wee bit jealous because I pay way too much in taxes. )

[shayinme]

Originally Posted by Seasons

Shay, how could the IRS even guess what my friend & her hubby owe, though? If they don't prepare 1099s? And probably don't separate business from personal bank accounts, or really keep track of accpunts receivable (that their clients pay them, once they've paid)? COULD they really slip off the radar? Esp if theither is employed outside their own business? (And possibly they haven't ever paid taxes while they've had this business - 5+ years - but I dunno for sure.)

I am definitely worried that my friend will get audited, and then - after lots of investigation - get hit with a huge bill. On the other hand, maybe she's right that they are not on the IRS's radar because they've never filed for what they owe. (In which case I'm a wee bit jealous because I pay way too much in taxes. )

Well if their clients aren't issuing 1099's then I suppose it is possible that they are not on the IRS's radar. I do know one such person, this person is almost 40 and for the last 15 years has pretty much worked under the table, gets paid in cash and never files a tax return. The person I know has probably only filed 1-2 times in their whole life. In that case I think its easy to stay off the IRS's radar.

However for folks who have always filed and suddenly stop I think that person is just waiting to get caught. There is also the issue of paying into social security (granted it may not be an issue one day) but if your friends are under the table they aren't paying into the system.

[Georgetown HB Mom]

Originally Posted by Seasons

Can I ask a question? How did the IRS find you and assess the back debt? Did you just voluntarily file a return and tell them what you owed?

My husband is a computer programmer and was an employee for this company. The company was in California and we were there a year. I wanted to move home to Texas so when he went to tell his boss we were moving, his boss said well you can keep your job, just work at home. That was in 2002. Him working at home is GREAT, except for the taxes. When he started working at home he became an independent contractor of that company and they send him a 1099 every year. So, like the honest people we are we of course filed our taxes every year and continue to do so and we did not have much choice since he gets a 1099. The first year he worked at home we did not save enough for taxes and that is how the snowball started. Now we always owe for three years. We paid off 2004 last August. Now on our payment plan we have 2005, 2006, and 2007. We should have 2005 paid off just in time to put 2008 on the payment plan. Like I said a big, giant, snowball.

Also, I noticed on my statement yesterday that the IRS had made an error. I called them and sure enough they had made an error. They corrected it and then I got a lecture from the IRS guy that I really should budget better and make my quarterly payments so I am not always making payments to them. Well, duh! I told him I could either pay them off or make my mortgage payment, put food on the table, buy clothes for my kids, healthcare for the kids etc. I chose to take care of my family. He told me that the mortgage won't matter if I go into default someday and the IRS comes and takes my house. I told him, well if I don't make my mortgage payment for the next few months so I can pay the IRS that the bank will come and take the house. And then I asked him about all these politicians that owe 100's of thousands to the IRS and how the IRS needs to go after them and make them pay penalites and fines. He then told me he could not discuss what other people owe. I told him, well CNN does.

Lisa

[shayinme]

Originally Posted by Georgetown HB Mom

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Also, I noticed on my statement yesterday that the IRS had made an error. I called them and sure enough they had made an error. They corrected it and then I got a lecture from the IRS guy that I really should budget better and make my quarterly payments so I am not always making payments to them. Well, duh! I told him I could either pay them off or make my mortgage payment, put food on the table, buy clothes for my kids, healthcare for the kids etc. I chose to take care of my family. He told me that the mortgage won't matter if I go into default someday and the IRS comes and takes my house. I told him, well if I don't make my mortgage payment for the next few months so I can pay the IRS that the bank will come and take the house. And then I asked him about all these politicians that owe 100's of thousands to the IRS and how the IRS needs to go after them and make them pay penalites and fines. He then told me he could not discuss what other people owe. I told him, well CNN does.

Lisa

Your situation sounds exactly like mine, even down to the IRS lecture. Last summer, it was just put the money away, blah, blah....like you I have explained if I put their money away in advance and pay on the back taxes I end up with no money to live off of and if I am homeless they really won't get their money.

Not sure how much you owe buy have you considered an offer in compromise? That's what we are looking into at this point because of we are always paying the arrears we will never get caught up.

Shay

[Georgetown HB Mom]

Originally Posted by shayinme

Not sure how much you owe buy have you considered an offer in compromise? That's what we are looking into at this point because of we are always paying the arrears we will never get caught up.

Shay

What is an offer in compromise? We owe just under 25,000.

Thanks,
Lisa