Owing Uncle Sam

Last night at my part-time job I came in to start my shift and the client my co-worker was working with was crying.  My co-worker asked me to double check the tax return so I did...everything was correct so I confirmed the client's worst nightmare:  she owed the IRS $8900.  She took a lump sum distribution of her deceased father's 401k and bought a condo cash.  She thought she did a good thing (and she did) but she did not consider the tax man.  She was hysterical and crying...it took a while to discuss her options and finish the tax return because she was freaking out big time.  Because of her tax bill she had to postpone her wedding.  I want to use her example to talk a little about taxes because owing taxes becomes a mental health issue depending on what you owe and your options.  Here are some things you can do so you don't develop a mental disorder as a result of dealing with the tax man.

• If you are going through a major event in your life, Set up a consultation with an accountant, financial planner, or tax preparer to find out how it's going to affect your taxes.  Some life events may help your tax situation and others will put you in a situation that you may owe taxes. When I say life events I mean, getting married, having kids, job promotions, inheritances, retiring, losing a spouse or child, your child turning 17...you can even go to a H&R Block or Jackson Hewitt office.  Just see SOMEBODY!
• If you're making more money, make sure more money goes to Uncle Sam.  Period. Go to your human resources and change the exemptions on your W-4. The less exemptions you take, the more money comes out of your check.  Zero exemptions is the most.  Beware some jobs take less taxes out of your paycheck than they should (they have a formula so I've heard) that might put you in a bad situation with the tax man.
• Midway through the year, take a look at your income and your withholding and have someone give you an estimate of what you might owe in taxes so you'll have time to get the amount of money you need to pay the tax man.
• If you're self employed or an independent contractor, send in estimated tax payments.  Period.  I doubt you want to pay the tax man everything during tax time.  Estimated tax payments will help you reduce what you owe. Check this out for more info and find a tax professional if you feel like you're reading Greek: http://www.irs.gov/pub/irs-pdf/f1040es.pdf 
• If you owe, DON'T FREAK OUT AND GET MAD! The IRS will work with you!  I owed a good chunk of change and they were quite nice to me.  You can set up a payment plan with the IRS. You can pay as little as $25 per month.  You can mail your payments in or have them take it out of your bank account.  The IRS will also keep your refunds until your debt is paid.  Better that than them garnishing your wages and seizing your assets.  DO NOT UNDER ANY CIRCUMSTANCES IGNORE THE IRS NO MATTER HOW MUCH YOU OWE! You will be sorry if you do! Check this out and find a professional if you don't understand:  http://www.irs.gov/pub/irs-pdf/f9465.pdf 

As Benjamin Franklin said "There are only two things certain in life:  death and taxes." Owing the IRS is not a death sentence and it's preventable if you have competent professionals to help you.

Signing off for now...

Take care,
-Kimmy