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Well Crap


It’s been a long time since we’ve had a major financial set-back. A really long time.

In fact, everything has been going rather smooth over the course of the past year or so. Income is up, outflow is down, we just hit the half-way point in our debt reduction journey. Life is good!

Until…..tax time.

We met with a CPA on Friday. Turns out we didn’t have all our sh-t together so we have to round up the last of our documents and get them over to the office early next week. So we don’t have official numbers, but it’s looking like it’s gonna be bad. Like….possibly in the 5-digits level of “bad.” Yeah. We may owe the IRS to the tune of over $10,000. How the f do we owe so much? I don’t even know where to begin.  I  thought my payments through my full-time job would help offset things more than they did. Clearly.

We have a LOT of deductions to claim. We also have tax credits we can claim. We’re not out of hope.

But it felt like I’d been punched in the gut after our CPA meeting. We don’t have $10,000. Not in cash. To owe that much would officially move us BACKWARD in our debt progression. The first backward movement since we started our debt payoff process nearly 3 years ago. We’ve had months of stagnation, but we’ve never gone BACKWARD. Never ADDED to our debt (mortgage not included). But my plan (to have cash or put it on a credit card to buy us an extra month) isn’t going to work if we’re talking about that much money.

We’re scrambling to think of a plan so we can pay with cash and not have to set up a payment plan (accompanied by penalties and interest) with the IRS.

In the meantime, we’ll be having another meeting (or two) with the CPA to figure out exact numbers and the best course of action. I’ve also suspended all non-essential debt-payments so we can pile up some cash. Unfortunately, given my recent agreement with the medical bill place, I’m committed to minimum sized payments of $1215/month through April. That, in addition to my minimum student loan payments, puts us at a minimum of about $2000/month. We’ve only been budgeting $3,000/month toward debt and having a minimum payment of $2000 only leaves us about $1,000/month of “wiggle room” to try to stockpile cash for our upcoming IRS debt payment. It’s not nearly enough. Particularly if we owe in the tens of thousands of dollars. omg. Just saying it makes me sick to my stomach. I hope to God it doesn’t turn out that bad. But, as the saying goes, hope for the best and plan for the worst. So all non-essential spending is DONE. In the meantime, we will hoard and stockpile money as best as we can. We do have an EF ($5,500) and a couple various savings accounts. Though it’s a bit like stealing from Peter to pay Paul. It’s certainly not ideal. But neither is the thought of acquiring more debt. It gives me a headache to even consider the thought.

Many of you had warned that we should beef up our EF now that we’re homeowners. This wasn’t the intended purpose (most commenters were thinking more in-line with needing to repair/replace an old roof or HVAC, etc.)….but now that we’re in this situation, it’s sure making me think about how great it would be to have a full $10,000 EF. This IRS tax problem would be solved (and then the “problem” of re-stocking the EF is much easier and less stressful).

So that’s my “well crap” update. I will bring you a February debt-update (which, as mentioned, is lower than the originally planned $3,000 due to the need to save all non-essential payments for our upcoming tax bill). In the meantime, I’ll just keep putting one foot in front of the other. Hoping for the best. Preparing for the worst. Ugh!


  • Reply Rhitter |

    Oh my gravy! That really hurts. I got hit with a tax reassessment last year and even though I appealed I still paid it but dummy me put it on my credit card. I should have set up a payment plan with them. At least the interest rate would be lower.

  • Reply Joe |

    I hope this turns out OK for you. I’ve been cheering your terrific successes, but I do think that this illustrates the need to get a little more ‘sophisticated’ in your financial knowledge, particularly with basic aspects of the tax code. Jonathan over at mymoneyblog actually has a nice basic primer up today.
    I’m guessing what happened is that you’ve been withholding amounts to cover your part time job to pay for the taxes you had when that income was a much larger share of your total income. Now that you are making a significant multiple of that total income, that income from the part time job is effectively taxed at your highest marginal tax rate.
    Your main job income will have had appropriate amounts withheld if you adjusted your withholding properly, but of course they have no way of knowing about this other income.

  • Reply Walnut |

    I know the feeling. We dropped a ton of cash at year end to mitigate our tax liability (owe around $2k now), but we very much robbed from 2017 to boost our 2016 itemized deductions (property taxes, some mortgage interest and charitable contributions). We adjusted our with holdings down to zero for 2017 and are waiting to hear the details of a potential Trump tax plan before we decide how much extra we need to start withholding each pay period.

    I usually mock up our tax return around the start of 3rd quarter and then check in again at the start of 4th quarter. It gives me enough time to either withhold extra or save up enough cash to increase our itemized deductions before year end. Since you have an accountant, it might make sense to schedule a check in each fall to see where you stand.

  • Reply anon |

    Can you request a filing extension? There’s still a small penalty, but it gives you an extra 6 months to file and pay. That would at least allow your to clear the medical bill and shift some money around to make the payments.

    • Reply Maureen |

      In general, technically the extension gives you more time to file, but not more time to pay.

      • Reply anon |

        Yeah I guess its 0.5% per month on the owed taxes? But is that standard even if you file on time and can’t pay?

        • Reply Taira |

          Yes that is standard. You don’t get an extension to pay only an extension to file. You are expected to send payment in full with your extension, not later with your return.

  • Reply Maureen |

    I know hubby has gone back to school but is there any possibility of him picking up a little extra work over the next few weeks?

  • Reply Katie |

    Good luck. You’re savvy and will figure this out but that doesn’t mean it doesn’t suck. The one nice thing is that I assume next year with a full year of house interest payments and tax payments, this will help offset your tax liability quit a bit. We bought a house in July and it made a big difference. Next year, after a full year, it will impact it even more.

  • Reply Joanne Mahoney |

    Our tax liability at the end of the year was never that much, but I do feel your pain. After we had the April 15th surprise, we met with our CPA to plan for the next year. Now there are no surprises.

    Good luck.

    • Reply Ashley |

      Nope. I’m a contract-based employee, so I’m responsible for my own taxes

  • Reply dh |

    I’m so sorry for this setback, and I hope it won’t be as bad as you think. It’s a learning curve and you’ll know better for next time.

    At the risk of getting slayed for suggesting this, could you borrow from a family member? You’re clearly a good credit risk, and nobody’s perfect. I’m sure that some readers will be shocked by this suggestion but since you’re reliable and it’s clear that the person would be paid back, why not?

    There are worst fates in life than borrowing from a family member once in a blue moon, and paying it back ASAP.

  • Reply Liz |

    This happened to me once– we just setup a payment plan with the IRS (it was a fairly low interest rate, around 4%) and rolled with it. Not perfect, but our tax code is complex and it’s hard to predict for a layperson, particularly when there are changes to the law during that year that affect the outcome. Don’t beat yourself up for it.

  • Reply kate |

    Are any of your other debts paid ahead so you can skip payments? We had a small setback recently but because one of our loans was paid ahead by several months I was able to skip the minimums while we straightened it out.

  • Reply Irina B. |

    eh… Did you know you can pay a tax debt in installments? It is certainly the ideal way to pay, but it won’t hurt as much as having to pay in full in April.

    First things first, go with your CPA and find the final figure. Then you can discuss your options. There is no need to feel down about it.


So, what do you think ?