What Happens If I Don’t Pay My Taxes? Penalties And Solutions

My poker winnings after starting off with $100.If you are like me and millions of other screwed Americans, you owe taxes by April 15. I used to think that it was always better to owe taxes each year, but that was when the 10-year yield and CDs were providing a healthy 4% annual return. Nowadays, you’re lucky to get a 2% return on either instrument. We won’t even talk about the average money market savings rates at 0.1-0.2%. As a result of such low risk-free opportunity costs, I’ve been an advocate of folks getting a small tax refund since 2009 when the world was ending.

After doing my own taxes for the 10th time this year and always getting a small refund, I will finally be sending in a check for a vomit inducing five figure amount on top of an already six figure amount in taxes paid for 2012. So what happened that caused me to make such an erroneous calculation since I should be an expert at doing my own taxes by now? I didn’t make a mistake. Instead, the government and the voters of California got me.

PROPOSITION 30 PASSES: IF ONLY EVERYBODY COULD PITCH IN

California Governor Jerry Brown floated legislation (Proposition 38) where everyone’s income taxes would be raised by 0.4-2.2% for 12 years to help pay for our public schools. I’m all for everyone pitching in together to help our state, especially if Prop 38 can raise $10 billion dollars per annum for our children. Unfortunately, Prop 38 was shot down because California already has some of the highest income taxes in the country at an average 8% for those making $38,000-$58,000.

What ended up passing was Proposition 30 where income tax rates would increase for seven years for only those making more than $250,000, even if the individual does not have children or does not have kids in public school. Seriously, what’s wrong with having parents pay for their own children? The top marginal state income tax bracket rises by 3% to 13.3% and raises roughly $6 billion extra per annum in tax revenues.

In other words, not everyone was willing to help pitch in to support our state’s youth which is why Prop 38 was rejected, even though Prop 38 would raise at least $4 billion more a year. Instead, the majority voted to raise taxes on the minority to pay for everything and not pitch in themselves. This is obviously not fair, but everyone needs to accept that the majority will always win in the end. Why work if more than 50% of our income will be taken away?

The worst part about the passing of Prop 30 (raising taxes on the minority) is that the law is retroactive starting January 1, 2012 to collect more taxes. I’ve never heard of a full 1-year retroactive law to claw back income from the public. All this time I’ve been carefully trying to manage my exit from society with the assumption that 2012 would be business as usual. I was wrong, and for my ignorance, I’ve got to pony up thousands of dollars to a state infamous for mismanaging funds.

I usually keep less than $10,000 in a liquid money market account because I hate having cash earn nothing. Furthermore, I have monthly positive cash flow that should continue into perpetuity. With my 2012 tax bill due on April 15 I don’t have enough money to pay my taxes. Perhaps many of you who’ve found this article on search are in a similar dilemma. Here’s what I did to solve my taxation problem.

UNDERSTAND THE PENALITES FOR NOT PAYING YOUR TAXES FIRST

1) There are no penalties for filing late if you have a tax refund. What a surprise! If you don’t want to claim your refund, the IRS has no problems letting you not claim your money. The IRS probably hopes you do your taxes wrong or simply forget to file in order to keep the billions of dollars in unclaimed refunds in their coffers.

2) Failure to file penalty. I guess there are people out there who don’t actually even file their taxes for some reason. If you fail to file, the penalty is 5% for each month the tax return is late, up to a total maximum penalty of 25%. The percentage is of the tax due as shown on the tax return. Let’s say I owe $20,000 in 2012, my penalty would be $1,000 a month up to a $5,000 penalty after five months.

3) Failure to pay penalty. Let’s say you refuse to pay your taxes by April 15. The penalty is 0.5% for each month the tax is not paid in full. There is no maximum limit to the failure-to-pay penalty. The penalty is calculated from the original payment deadline of April 15th until the balance is paid in full. In other words, you can have a failure to file penalty and then a failure to pay penalty which would really screw you over.

4) Interest payments. This is where the IRS really gets you as I’ve written in a previous example. The IRS charges daily interest on the taxes you don’t pay based on a rate of roughly 3-4% per annum. The rate adjusts every 3 months. Even though nobody can get a 3-4% return risk-free, the IRS rakes you over the coals with a super high interest rate.

5) Crushed credit score. If you decide not to file and not pay for over a year, a tax lien will be produced which will destroy your credit score by 100-150 points on average. It will then take anywhere from 2-7 years to get back to your original score.

6) Say hello to jail. Finally, if the IRS catches you evading taxes for much more than a couple years, you could face jail time, depending on how much you owe. You’ve got to evade or cheat on more than the cost it takes for them to prosecute and house you, so this shouldn’t be a problem for the majority of us.

SOLUTIONS TO PAYING YOUR TAXES WHEN YOU’VE RUN OUT OF MONEY

Now that you know the downside of not paying your taxes, here are some plausible solutions to help feed the government.

1) Ask family or friends for a bridge loan. I hate asking friends or family for money, but when it comes to defending oneself against more government tax penalties, one shouldn’t be too proud to ask. Family and friends should be more understanding that you need to borrow money to pay the IRS vs. borrow money to go buy some extravagant car or purse you don’t need.

2) Adjust your withholding allowances. Check with your company payroll to see what your current withholding allowance is. I usually put 0, which means my employer takes out the most in taxes so I have to pay the least come tax time. Adjust your witholding allowances higher if you need more cash flow, but that might mean a higher tax bill later on.

3) Call the IRS and ask for an extension. You can always call the IRS and ask for an extension by April 15 due to hardship. Depending on how bad your hardship is, a grace period may be granted for a certain period of time. The IRS really are a bunch of nice people contrary to how they are portrayed in the movies. They realize the tax code is ridiculous and the people who work at the IRS are on your side. It’s just the politicians who aren’t because they are being lobbied by tax firms and need a complicated tax system to retain power.

4) Borrow from your 401(k). Borrowing from a 401(k) is discouraged because it takes money out of your investments which may grow. If the world is detonating, then it’s not so bad to pay for a vital liability. However, there are some borrowing fees to pay, and a high interest you pay yourself to pay back your loan.

5) Sell some unnecessary belongings. Here’s a great chance to sell your crap that’s been piling up in your basement. There’s no better feeling than decluttering your house, making money, and using the proceeds to pay off the IRS!

6) Get a temporary second job. If you do your taxes soon enough (Jan), you should be able to work a second part-time job for a month or two to cover your tax liability. This is when you will really start to hate the government for all it taxes you, because you’ll be trying to make more money that’s taxed to pay taxes. Bad jobs develop character, so look on the brightside.

7) Ask your employer for an advance. This is a tricky one because you don’t want to let your employer know you don’t have enough money. They might translate your mismanagement of money as a work flaw which could lead to a lack of promotion and future pay. That said, plenty of people owe taxes every year which they can’t afford. If you have a legitimate excuse, such as the out of the blue retroactive Proposition 30 bill I discussed, then your employer should be understanding. You never know until you ask.

8) Withdraw interest from your CDs or ROTH IRA. The interest you earn from your CDs can be withdrawn penalty free. It’s only the principal that is affected by penalties if you decide to cut the CD duration short. You can also withdraw your original contributions of your ROTH penalty free, but you will have to pay a 10% penalty on earnings before 59.5.

PAY YOUR TAXES ON TIME AND SAVE YOURSELF THE HASSLE

Paying taxes bites the big one. It’s a large part of the reason why I removed myself from the system in 2012. There’s too much discrimination, waste, and persecution. Nothing really bad is going to happen if you don’t pay your taxes as you’ve read above. You’ll just have to pay penalties. It’s only if you try and evade on hundreds of thousands or millions of dollars where you get into big trouble. The IRS goes after big fish and generally leave the rest of us alone.

I am able to pay my five figure tax bill with some fortuitous timing. One tranche of my deferred compensation hit my E*Trade account recently so I liquidated my holdings to pay the IRS. If I didn’t get my deferred comp, I would have withdrawn the interest earned from my CDs penalty free. For 2013 and beyond, I shouldn’t have a problem with unexpected tax bills b/c my deductions are the same and my income is much lower.

If you’ve got a tax bill that’s too high to comfortably pay, definitely look into adjusting your witholdings down for the following year. The easiest tax shield available to everyone who buys a house is mortgage interest. After that, things get much more complicated and you’ll probably want to speak to an accountant to lower your taxes further.

Readers, have you ever been hit with a surprise tax bill that you couldn’t afford at that moment? If so, what avenue did you take to pay? Any other short term fund raising solutions I’m missing?

Photo: You can always try gambling. Just kidding. 2013, FS.

Regards,

Sam

Sam started Financial Samurai in 2009 during the depths of the financial crisis as a way to make sense of chaos. After 13 years working on Wall Street, Sam decided to retire in 2012 to utilize everything he learned in business school to focus on online entrepreneurship.

You can sign up to receive his articles via email or by RSS. Sam also sends out a private quarterly newsletter with information on where he's investing his money and more sensitive information.

Subscribe To Private Newsletter

Comments

  1. says

    Don’t forget that the IRS also looks at your charitable contributions. That means anything like church tithes, mosque/temple donations, donations to orphanages, etc. If this number seems high, it might create problems for you long term.

      • says

        High in terms of donations in terms to the amount of money one brings in. $3000 donation might not be much for someone earning $50,000+ (ideally someone earning more than this) whereas someone with much less income might spark some curiosity (I’ll have to check, I’ve been known to be wrong before!).

    • David M says

      Why would a “high” number be a problem – you provide the support for the number on your tax return – no problem!

      • says

        I guess it really depends David. An abnormally high charitable donation in accordance to what the person’s quoted income is will sometimes look fishy. In the cases of famous drug lords and italian mobs in the past (just take a visit down american history), these guys would donate heavily to churches and other religious organizations to make sure that they seem they are harmless citizens to society. Their income that showed didn’t seem to support how much they were truly donating so further investigation is done.

  2. says

    In sum, don’t F with the IRS. If you owe them, you better pay them or you’ll be sorry. Fricken IRS. I had a family member that owed an absurd amount one year and they called the IRS and said that they didn’t have the money to write off a check like that. The IRS said it was cool, they could get on a payment plan. So that’s something else that people can do. Can’t pay? Call up the IRS! I guess they’re pretty nice about putting you on a monthly payment plan.

  3. says

    Having worked in public accounting for years, I have seen my share of tax disasters. What most people don’t understand is how generous the IRS can be when the taxpayer is upfront and communicative about payment issues. At the end of the day, the IRS just wants to collect their money. The second the taxpayer gets difficult, they will less likely to help and will resort to a lien.

  4. says

    Wow, retroactive for a full year?! That’s just a bit nutty if you ask me. My in-laws live in San Diego and regularly complain about the taxes out there. Thankfully we have never been hit with a surprise tax bill as we generally keep a close eye on it, especially now with our business. The first thing I would do is file that extension and go from there as avoidance will get you nowhere. Thank you for teaching me something new today Sam, I did not know that there’s not a fine is you get a refund….though it does make sense.

  5. says

    California is a great place to live but the state government and taxes suuuuuck. Its messed up that they passed prop 30 retroactively. Especially because they didn’t specify any of that in the language when the prop was on the ballot. It’s so frustrating how politicians will do whatever it takes to pass a change and trick voters in the process

    • says

      There are a lot of great places to live; I gotta wonder what’s so fab about Cali that folks are willing to continue to pay for all that flab. I live in southern Bama and we have white sand beaches, gorgeous wetlands, mountains within a day’s driving distance, and a whole lotta liberty. And yes, we do have laws that keep us from procreating with our cousins. We would welcome an influx of sensible people willing to shore up the cause of liberty.

  6. Lyle says

    Quick question: If you declare bankruptcy, do your tax problems disappear? I’m not contemplating it, just curious. Thanks

    • says

      Don’t think so. This is the government, and the government is omnipotent. Here is an excerpt I found:

      “Your tax debt is an unsecured debt, yet because it is tax the government has enormous powers to recover what you owe to it. Part of this is to put a lien on any of your assets, lay a levy on them or use a collection agency. This means that even though your debts are unsecured to start with, it can get converted to a secured debt pretty quickly. If this happens you lose any advantage that you had in filing for bankruptcy.

      Yet while credit card creditors will have to use a collection agency to collect from you which is governed by a number of laws, the only realistic option for them other than this is to go to court or to settle with you. Tax dues however are different in that the IRS can place a lien on any of your assets even without going to court..

      If you file for Chapter 13 reorganization bankruptcy, your tax dues does not go away. They are just kept in abeyance, and will once again become due when you come out of bankruptcy. This means that the IRS can restart collection proceedings from you once you come out of bankruptcy after a few years.”

      You can always negotiate with the IRS on what you owe. They can’t squeeze water from stone and would rather get something then nothing.

      • Lyle says

        Thank you, very helpful! I had just seen commercials on tv where it said something like ” is the IRS breathing down your neck, we can help” and so I assumed that they would use bankruptcy, but probably they would just help you work with the IRS for a payment plan or something like that.

        • JayCeezy says

          “It’s not your fault!” LOL~! I love those commercials!

          One more example of the power the IRS (and in CA the Franchise Tax Board), even if you declare bankruptcy and your 401(k) (under $1mm) or IRA is protected from creditors…wait for it…the IRS and FRB can seize that money. Let us all never forget, even for a moment, that 401(k) is actually the IRS tax code itself.

          Seriously, bankruptcy is for idiots that can’t handle their cash; the last stop on a lifetime of bad decisions. I know, I know, supposedly a high percentage are “health related” but drill-down and that percentage is self-reported and all that implies. Remember! “It’s not your fault!”

        • Lyle says

          Absolutely JayCeezy and I agree about a 401K being basically at the disposal of the government as well.

  7. says

    The part about them passing a tax and making it retroactive kind of scares me. That just seems like a pretty bold move on their part.

    Next thing you know they’re going to see this post and start asking you about those poker winnings!

  8. Larry says

    “What ended up passing was Proposition 30 where income tax rates would increase for seven years for only those making more than $250,000, even if the individual does not have children or does not have kids in public school. Seriously, what’s wrong with having parents pay for their own children?”

    Questions:
    1) Would you object to this tax if you had children of your own in public school?
    2) If (admittedly a big if) this tax leads to improvements in public education, do you perceive no benefit to yourself if CA starts to graduate a better-educated high school population?
    3) Do you have a better approach to paying for CA public schools?

    • says

      1) Not as much, but I would still like everybody to chip in. To vote to increase another person’s taxes while not having to pay more yourself is not right.
      2) The government will misappropriate funds.
      3) Increases taxes on everybody, not just a minority. Reduce tenure, increase teacher pay, create more teacher incentives, hire more teachers, require parents to get involved or else pay more taxes that goes towards education.

      What are your thoughts on the 3 questions?

      • Larry says

        I am childless myself, but support improvements in education because they will benefit the society as a whole – which right now is staggeringly ill-educated. (I say this partly on the basis of twelve years of teaching college English.) But unless teachers both enjoy greater autonomy and demand more of young students, I doubt there will be significant improvements. And simply throwing more money at the problem won’t necessarily help. I always say, only partly in jest, that when Socrates taught the youth of Athens he needed nothing more than a grassy knoll overlooking the Acropolis.

        As for taxes in general, my position is that those who have benefited disproportionately during the last 20-30 years should also contribute disproportionately. When I was growing up in the 50s and 60s, marginal tax rates were far higher, yet you never heard the degree of complaining about taxes that you do today. It may shock people here to learn that my immigrant grandparents considered it an honor to pay their taxes.

        • says

          Sounds good Larry. I forget if you live in California, but if you do, did you pay the extra 3% in taxes for prop 30? If you don’t, what are some of the ways you are giving back, money or education or other to support our youth?
          I’m mostly fascinated with the growing acceptance of folks feeling it is OK to raise taxes on others without having to pay more themselves. What do you think are the reasons why such folks are OK with discrimination?

          Is discrimination OK if we aren’t being discriminated ourselves?

  9. says

    OMG! That’s a huge check to send the IRS. We only owe about $600 this year which is a lot less than usual. I sold a bunch of options (from my job) last year and they withheld like 40%. Anyway, glad to hear you go through it without too much trouble. Hey, at least you have 2013 tax to look forward to. We’ll finally be able to take advantage of all the tax credit next year. I can’t wait.

  10. David M says

    “The IRS charges daily interest on the taxes you don’t pay based on a rate of roughly 3-4% per annum. The rate adjusts every 3 months. Even though nobody can get a 3-4% return risk-free, the IRS rakes you over the coals with a super high interest rate.”

    Is 3-4% really that high for being given an opportunity to pay over time? Most people that do this, probably have the ability to borrow from a credit card company – there rates – much higher than 3-4%. If the rate was very low – there would be no incentive for people to pay off the debt or not incur the debt – I think this rate is fair.

    When I was in High School I did not file for 2 years. I was told I did not need to by my employer. Well guess what – no one told the IRS about this “special arrangement”! I got a letter in the mail. I had to pay taxes, penalties and interest – I had the money and I just wrote the IRS a check. It totaled about 1/2 of the money I had in the bank. Since that time, I do not mess with the IRS!!!!!

    • says

      3-4% is not the end of the world. You’re just getting robbed since nobody can get 3-4% risk free.

      Understand the penalties before paying late or not paying. It’s not THAT onerous as people think.

  11. nbsdmp says

    I cannot really understand California…don’t get me wrong, it is absolutely beautiful and I understand why everybody wants to live there, but really 13.3% State income tax? Seriously? Then you get to read about some County Commisioner’s pension for life is $400k a year? That is more than we pay the President of the whole damn country! What kind of joke is this system? It really has to make you happy to send in that 5 figure check to know that you cash is being wasted in such a ridiculous manner. btw, I just mailed my check too…not fun!

    • says

      Yep. 13.3% State + 39.6% Federal = 52.9% excluding all the other taxes. I really think a total taxation rate of 50% is the breaking point for many. Doesn’t feel good to work and pay more to the government as you do yourself. Your TITTS ratio will be pathetic!

      It’s all about taking more while you can.

  12. Ben says

    I don’t really get your point about having only folks with kids pay for education. As you well know, we all benefit from a highly educated population, and property values are higher in areas with top schools.

    • says

      What about at least having folks with kids pay for their education instead of only folks who make over a certain amount pay?

      Did you pay more in taxes due to prop 30 and have no kids? Or are you asking why not pay more taxes from someone who didn’t pay more taxes?

  13. Ivy says

    I got surprised this year – we’ve always got a refund and this year had to pay $7k federal. A factor of paying down the mortgage aggressively, and also got hit by the AMT. At least the state taxes still ended in refund. Our tax guy had no good suggestions really, so I guess we’ll have to adjust withholdings indeed (I still haven’t bitten the bullet, will likely have an extra amount off my year end bonus)

  14. says

    I know how much you love California, but have you ever considered moving? I mean this is getting absolutely ridiculous. I guess it’s just a question of how much is too much, but I’m sure you have a breaking point.

    Great tips on the taxes. Its comical the way the IRS makes no attempt to return money that’s owed to you but is willing to turn your life upside in order to collect what you owe them.

    • says

      Working on it. Takes time to disappear.

      I’ve taken a hatchet to my income. Now I’m waiting for the right time to get rid of all California related assets, namely property. But, not yet. The good times are back and we’ve got several years of an upswing IMO.

      After selling assets, then I’ll physically move to set up residency in Nevada or Washington, although Hawaii is the best for life, but not for taxes.

      Then I will run for Senator and get a bullet proof pension!

      • JayCeezy says

        FS, have you considered faking your own death? At a certain point, it does have an appeal.

        Seriously, relocating is an excellent idea. One thing about FL, is the legal homestead exemption that protects one’s primary residence from all creditors (except the IRS). This is why OJ Simpson moved there (so his $300,000/yr NFL pension could not be garnished by the Goldman family), and the Enron CFO Andrew Fastow and some other high-profile celebrities moved to Florida and bought big houses.

        But I think for a squeaky-clean guy like you, with no chance of scandal or bankruptcy, that is not a good reason to go to Florida. Personally, I like NV and WA a lot. I’m still in CA for family reasons, but also looking for a move further on down the road. It will be interesting to read about your journey to relocating.

  15. JayCeezy says

    Dionne Warwick, please take note of this blog post, and have your $48,000/yr part-time Personal Assistant reach out to the IRS to work out a payment plan on the $10 million you owe. In other news, Wesley Snipes is now out of prison early, and just in time for “Expendables 3.”

    Taxes are a drag, and audits are brutal. I do follow all IRS rules to my best ability, and document everything. However, ‘Red Flag’ items (charitable contributions, undeclared 1099 income, sales of collectibles, etc.) can be very costly with time. The IRS has treated me as if I were being paid by the hour to answer written inquiries, talk on the phone, and travel/wait/meet. There is an excellent book that has been helpful to me in avoiding these unnecessary encounters, “The Tax Racket” by Martin L. Gross; the book also has a detailed worksheet for calculate one’s REAL taxes paid (i.e. taxes on hotel, airline, restaurants, excise tax, gasoline tax, blah, blah, blah.)

    Anyway, this April 15 I will roll over one more time, close my eyes, and ‘think of England.’:-)

  16. says

    “Call the IRS and ask for an extension” Is the grace period interest and penalty free?

    My only income is from my Canadian employer and I am taxed at a rate of 30% but that includes federal income tax, Canada Pension and unemployment insurance. I have never had to pay.

    • says

      You are lucky then! Although, a 30% effective tax rate is equivalent to someone making $350,000 here in the US. Unless the 30% you quoted is the highest marginal tax you are paying?

      • says

        The rates are set based on income earned and I am happy with what I pay. That pays for my free health care and welfare and unemployment benefits if I ever need them. That is also my payment in to the government held pension fund so I will get all of that back when I am much older.

        School taxes are a part of the local property taxes and I pay $3,000 per year on my $200,000 home.

        I am happy to pay because I benefit so much and the government pension cheques are my important part of my financial future.

  17. says

    If you must, you can fill out form 9465 to set up an installment agreement with the IRS. This allows you to reduce the penalties/interest because you’re at least paying SOMETHING, though the form says they’ll still charge you. Our firm has had luck in having the IRS waive penalties (because we file on time) IF our clients pay on time every month.

    Here’s a link to the form: http://www.irs.gov/pub/irs-pdf/f9465.pdf

    • says

      Thanks for the info Jacob. One more week and your accounting duties are OVER! Whoo hoo!

      Bottom line: IRS aren’t heartless people. They want to work with folks who can’t pay their taxes, so take note everyone!

      • says

        You know, they aren’t heartless (sometimes), and want you to pay your taxes, so they are accommodating those who can’t pay it all immediately. Also, working for a firm where the head accountant has 43 years of experience helps, because he can work his magic to win most every audit and makes the IRS agree with us :)

        And yes, finishing up the last two returns tonight. Then FREEEEEDDOOOOMMMMM!!!!! :)

  18. Matt says

    Why do politicians even pretend that tax increases will have sunset provisions? When I lived in Mass, every new tax and fee would come with a promise that it would only be for 5 years, 10 years, etc. My favorite was them putting up tolls on the Mass Pike that would come down once the highway was paid for. That was in 1981.

  19. Nick says

    Unexpected Large Tax Bill:
    In 2005 I sold some property and completed a timely 1031 exchange into an industrial property. All seemed fine.
    I still remember where I was when my accountant in early 06 informed me of my rather large tax bill as a result of the 1031 Exchange not meeting all the necessary requirements. In my world, the tax bill was significant.
    We set up a payment plan with the IRS, which was very easy to do. Writing those checks for the next 3 years was not.

      • Nick says

        1031 Exchange:
        Generally straightforward. The Tax on Capital Gain can be deferred by selling property A, and reinvesting into Property B. There are a handful of criteria, most of which is fairly simple. (45 days to identify, 6 months to close, Property B must be equal to or greater in value, If Debt on A then must have debt on B and a few other rules)
        The problem I ran into was that I had a minority interest in my up-leg property. The gross figures were all acceptable, but my 20% ownership did not meet the necessary criteria. This resulted in capital gains due on what I had gained from the relinquished property.
        I have recently dealt with additional specifics on the exchange rules. The 1031 rule apples to long term gain. Lately, investors have been able to buy a property renovate and sell for a gain often in a time period well below 12 months. If the gain occurs in under 12 months, the 1031 appears to not be valid. (i’d review this with a CPA, but the opinions I have received are not supportive. ) You may have some leeway if the acquisition occurs in the fall, and the disposition occurs after Jan. The 2 separate years may be enough to allow the exchange.
        Enjoy your blog an insight into personal finance. Keep it up!

  20. Nick says

    Continuing…..
    I also was able to negotiate some penalties and interest that had accrued during the payment period. This amount was around $2000. I think it is worth asking the IRS if they will negotiate the remaining balance and penalties while you are paying it off. I think this is just a matter to catching someone in a good mood so long as the request is under a certain threshold.

  21. says

    A few years back, I didn’t report a very large sum 1099. Let me just say, the IRS got me back two years later. Now I’m paying tax, penalties, and interest on that amount. I should have the darned tax bill paid off in two years but it was a whopper of a bill! Thankfully, the IRS did let me pay the amount in payments over three years.

  22. Mike Hunt says

    Hi Sam,

    Move overseas and become an ex-pat… that’s the way to go. The first $100K or so it tax free to the USA. And more importantly, you don’t have to worry much about health care as everywhere in the world is far cheaper than the USA… of course cars will be more expensive but that are the tradeoffs in life!

    Seriously, give it a think!

    -Mike

    • says

      I have SERIOUSLY given it a think, hence my inquiry into the foreign service. The first $100K tax free is amazing. I need to set up residency in WA, NV, or FL first though.

      I’ll drive the sexiest 50cc scooter around baby!

  23. says

    NV is death. Go to Hawaii buy a large house and rent downstairs out. Take the interest deduction to lower your taxes. I heard you can get upwards of 30k tax free doing that. Combined with the tax break and it can help fund a lot of investment accounts.

  24. says

    Real estate property taxes are notoriously late when you buy and sell income property. I remember receiving an adjustment a couple years later that hit me like a ton of bricks. I had the funds to pay for, but it seemed there should be a statute of limitations with taxes of any kind. If it were a commercial property, I would have the capability of passing it on to the tenants and they would have trouble with it too. The sad truth is we are at the mercy of the various taxing agencies. Face it, they are right until you can prove them wrong and they do not care about you.

  25. curious_pal says

    i have a question what about international students with f1 visa status?? if they apply for the american oppurtunity taxes?? what happens and are they elligible?? as they are payubg thousands of dollars for tuition anyway??

  26. Marc says

    I was wondering what amount am I looking at? I left the US 7 years ago and I just found out that 7 years ago my old employer got a letter from the IRS I had to pay $3800! Now I am wanting to return to the States and am wondering How much I am going to have to pay! Anyone can help me with that before I contact the IRS?
    Thanks

Leave a Reply

Your email address will not be published. Required fields are marked *