The IRS Treadmill

Its tax time and not filing your income tax is the worst thing anyone can do. As an independent contractor the oddity of you owing is evident. However, not filing is making a colossal mistake. When, not if, the IRS catches up with you, you will almost end up owing more in penalties and interest than you did in actual taxes.

Although Marvin and I have never missed a year of filing we have owed the IRS several thousands of dollars. We were unable to pay the entire balance so payment arrangements were made. With that, it was hard to see the balance go down because of the compounded penalties and interest every month, thus the treadmill. We found ourselves behind in our payments several times, and a Notice with Intent to Levy was issued, several times. That means in 30 days, life becomes a nightmare. The IRS is the only entity with unlimited power. They can take everything you own in the blink of an eye without going through the court. However, what I discovered is that this is 100% AVOIDABLE as long as you keep the lines of communication open. If you ignore them, it will cost you dearly. We had our account reinstated countless times because we fell behind in our payments countless times. They never told me they wouldn’t reinstate the account, and neither did they ask for all payments due. We just kept chipping away as best we could and eventually paid them off. Communication is the key.

It is critical to have an accountant that is current with all of the deductions you are entitled to as an independent contractor. Another thing to keep in mind is the numerous 1099’s that will be coming in from all sources. It’s hard to remember where they are all coming from. Therefore, we learned it’s best to wait until the end of February to allow of them all to arrive. We filed prematurely one year because we didn’t know we were missing a 1099 with $10K worth of income. We were in the process of moving and didn’t realize that we hadn’t received it before we filed. Although companies are to have these to you by January 31, we didn’t receive it until after the first of March. Shortly thereafter, those monies were reported to the IRS and we were sent a letter and ended up owing $3500 on top of the several thousands of dollars we already owed. An expensive lesson learned.

Fear not and file! Many in this industry don't, and are setting themselves up to be on a treadmill for years to come.

Render unto Caesar’s what is Caesars. If Jesus paid taxes…