The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: FunkyChopstick on January 13, 2016, 09:10:41 AM
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Hello Sage Mustachians,
CONS: I have a bit of a problem. I owe Uncle Sam some dinero, approx $4,000 from 2013. I haven't even filed for 2014 /15- I will imagine another $6,000- lets call it $10,000. I do independent contractor work as a side job and never started an LLC for it when I was a fledgling. All those lovely checks I received I cashed and never had the thought to put aside money for taxes- idiot.
Between now and then I had started a very legitimate business with my partner, sold out, and took a job with great benefits @ 52 k/yr. In addition to the contract work I still do ,for approx 4k/yr, my final whopping total is 56k/yr. I also chased that American dream and after renting a shitty apartment for years in Philly for $850 a month I bought a house and landed a mortgage of $980 a month. Said home was only 113 K @ 3.5% for a first time home buyer on a 30 year term. I was approved for a 215 K mortgage but went with a modest 3 br, 1.5 ba but we knew we didn't want to be house poor. My dumb-assery continues because upon taking that job and house my commute is now 40 minutes each way/ 70 miles round trip 5 days a week.
My husband just finished up a psych/neuro degree in September. He has been applying to jobs everywhere but to no avail. From PT to FT, from research and grants ( his background) to bagging groceries- no dice. This has clearly been a major source of frustration as well. He is applying for Grad school for Fall 16 but we are hoping to have some additional income before then. Until then, I am his (frugal) sugar mamma. I hope we can be DINKs for a bit, but now just SINK.
PROS: I have done so much reading on FI and frugality in the last two years and my eyes are wide open. I recently stumbled on MMM but before that I was checking out The Tightwad Gazette and Dave Ramsey. They are my personal and financial angels but I think MMM is my god
-We paid off hubs credit card, approx 7500, two months ago. The interest was approx 13%. Done. Zero balance.
- I have a $1,000 emergency fund as rec'd by Dave Ramsey. This is sacred and forever untouched
- For the last 6 months I have contributed my 6% to my 401K which is the minimum to get my employer match. I don't ever intend to stop this
- I started a Roth IRA last year and had $2,100 total by the end of 2015. I would LOVE to be able to max out my, and start one for my hubs, in 2016 and going forward
-I have a credit card now that has a 10k max, it has 8,500 k on it now but I have zero % interest until September. The balance will be zero at September. 25% of the balance is for my school.
-As a couple we are as earnest as every to reduce as much spending as possible. I am a solid lunch packing, oatmeal breakfast eating, and only have date night twice a month and its during a lunch special BYOB woman on a mission.
- We have a 98 Camry that is paid for and has excellent gas mileage for my commute.
- No undergrad debt from my husband thanks to my in-laws
My Questions to MMM Community:
Where the hell do I begin?
Do I pay off the IRS little by little or try to get that squared away first?
Should I just keep clunking away with my Roth IRA bc that will help me out the most later on?
Any suggestions at all would be extremely helpful!
- A confused Funky Chopstick
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I'm a CPA. The first rule is ALWAYS file your tax return on time even if you don't have the money to pay the amount due. The failure to file timely penalty is HUGE compared to the penalties for the inability to pay. If you set up a payment plan with the IRS they are much easier to work with. Have you set up payment plan for 2013 yet? If not, do it. I'm assuming you've received notices for failure to file your 2014 tax return. Have you received any notices indicating that a "substitute for return" has been filed? This is where the IRS makes up a half a*ss return for you since you didn't file your own. You don't want this to happen because it's much harder to fix. I doubt they've done a substitute for return yet because they work REALLY slow at the IRS so that means you probably still have time. Get your 2014 return filed NOW and get a payment plan set up NOW!!
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And lastly, don't scr*ew with the IRS. They are the most powerful creditor. They'll put liens on your house....you might already have one. They'll drain your bank account or garnish your wages. Just pay your taxes....it's easier, trust me.
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Just in case you don't want to follow COlady's advice, here's another vote to file your damn taxes. Then get on an IRS payment plan and pay on time, every single month. Send extra if you can.
edit for spelling.
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In your situation paying the Revenue is a need while saving is only a want. No brainer. Get on to the Revenue as soon as you can, confess your sins, ask for absolution and pay them as much as you can as soon as you can.
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Will your husband's job prospects greatly improve if he has an additional degree? Seems strange to be going back to school (in the same subject) if it has yielded zero job opportunities thus far.
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- I have a $1,000 emergency fund as rec'd by Dave Ramsey. This is sacred and forever untouched
If you aren't going to touch it ever, why have it? Putting it toward what you owe the IRS, then rebuilding it, is well worth considering.
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Thanks everyone for your suggestions. A phone call that I have been avoiding for too long was made this morning. I am emancipated (at least for the 2012 taxes). Apparently 2013 is squared away, I just need to file for 2014 within the next 30 days and then get ready for 2015! I took my emergency money and, thanks to automatic savings plan that I totally forgot I had, I am all caught up. I never thought about using my emergency fund for the IRS but it makes sense. I guess sometimes you can't see the forest through the trees!
Hubs is going to be a clinical psychologist, very excited about that ROI one day.
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...I am emancipated (at least for the 2012 taxes). Apparently 2013 is squared away, I just need to file for 2014 within the next 30 days and then get ready for 2015! ...I am all caught up.
Congratulations! Very well done! Best wishes for a bright future.
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File!
The penalties/interest accrued for failing to pay your taxes are low enough that sometimes it can be worth prioritizing them below other stuff (e.g. credit card debt, perhaps), especially if you can convince the IRS that you had a hardship and get on a payment plan, but the penalties for failing to file suck really, really bad.
(In either case, the interest rate the IRS charges will be high enough to prioritize repaying the taxes above investing.)
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Hubs is going to be a clinical psychologist, very excited about that ROI one day.
A note on this - please make sure that he knows to attend only an APA accredited program. Many of the "professional" clinical psychology doctorate programs are shitty as hell - sorry - they are terrible, and extremely expensive, and either not accredited or just junk programs. Students come out very poorly trained, unable to get an internship (because the vast majority of sites that are accredited by APA for internship require that you attend an APA accredited doctoral program), and also unable to ever get a license to practice.
I have been clinical psychology faculty in an APA accredited internship for 20 years. There has been a real degradation of the quality of training of students coming out of doctoral programs (e.g less than 500 hours of clinical practice when they apply to internship. The norm 25 years ago was 2000 hours pre-internship). Many poorly qualified/unqualified students have 150k-200k in student loans from cruddy schools. His grades in undergrad need to be very good (above 3.7) and his GRE scores need to be very good in order to get into a good doctoral program. If he does not have these qualifications he should not take a doctoral degree in an un-accredited program. Instead he needs to make other career plans if that is the case.
I realize this is off topic - but it is an area of concern because I have seen quite a few people taken advantage of by these programs. It sucks to be 28 or so, owe 150k+ in student loans and be just an unemployable as you were before the student loans.
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MsPeacock- thanks for chiming in. Your concern was voiced early on and he has been looking at APA programs. We have our fingers crossed for Widener but please feel free to let me know of pit falls. His grades are solid and he needs to take GREs. Originally he was doing to do med school and specialize in psychiatry. So now that MCATs are obsolete we move onto GREs! We came to the decision that we wanted to have kids before 40 and psyD would be fulfilling but also financially stable. I feel like psychology has been a buzz major for some years now, at least in an undergrad level. Hubs aside, the two psychology undergrad majors I know work at a cosmetic counter and coffee shop. *face palm*
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Weidner has a solid program last I heard.
Undergrad major in psychology is good if you intend to pursue a Ph.D Otherwise, yeah, cosmetic counter. It has been a popular major for undergrad for a long time. When I went to grad school only about 3% of applicants got into doctoral programs. I think it is probably a bit higher now due to the proliferation of professional no legitimate schools.
Feel free if either of you wants to PM me with questions.
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For future tax years, remember that you won't incur a tax penalty for underpayment of estimated taxes if you pay 110% of last year's tax, spread evenly over four quarters. The penalties are going to be expensive, and completely avoidable. File on time and set up a payment plan.
The interest rate on owed taxes is absurdly low- 4th quarter 2015 was just 3%.
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Sounds like you facepunched yourself and you are on a good path of becoming debt free. Just pay off those outstanding debts and you should be fine.
::Shiver:: on the 1099 income and not paying estimated taxes, my wife did that this last year and I almost found myself in the same position as yourself. Thats the stuff that keeps me up at night.
Maybe a question for my education, is there any reason to not just up your 401k instead of putting into ROTH? It seems like you would benefit more by throwing in more pre-taxed income into your 401k then taxed income into your ROTH?