I’ve been fretting about this for a while now. This afternoon, I meet with my Tax Man to figure out just how much I owe Uncle Sam in taxes on freelance work I did last year. It’s funny, it didn’t seem like that much when the money was coming in. Primarily because I was unemployed twice in 2008, and most of the time, that money wasn’t extra in any regard. It put things like eggs in the refrigerator and gas in my car once a month.
What’s more, I was so stupidly diligent when I was employed that this predicament just doesn’t seem right. After being hired in March, I saved and saved and saved so that when the piper came ’round, I could pay him without feeling the pinch. It feels appropriate to insert a sinister laugh here, because seven months later, there I was laid off again. Ah, it’s a love/hate relationship I have with this industry. At any rate, six weeks without a paycheck (rent times two, utilities times two, car payment… you get the picture) and I burned through my little tax nest egg in a jiffy. Since the middle of November, I’ve been quite the little miser, counting each cent, hoarding it away for April 15th.
Only, it won’t be enough. And it’s making me crazy.
I make jokes about what I’m going to do for the money (my favorite at the moment has to do with a brothel in the suburbs of Plano). But you know, death and taxes. Not actually funny except sometimes on reruns of Seinfeld and even then… meh. Every website I’ve read emphasizes how Bad Idea Jeans it is to be in debt to the government and how they recommend begging, borrowing and stealing before engaging the IRS in a payment plan. I’m certain my Tax Man will have some words of wisdom on the matter (which I’m hoping don’t include flee! because my passport has expired) but waiting until then has been torture.
The last time I saw my Tax Man, I’d been laid off two hours earlier. If around 3:00 this afternoon, he throws out a number and I start crying in his office, he’s not even going to flinch. We have a special dynamic.
Update: Well, yippee. It was worse than I thought. Somehow, though, I feel better. My Tax Man put my mind at ease, and then filed an extension (I’ll just have to suck up the late fee in October). And even though it’s a whole lotta money, I’m not as worried. Frankly, I’m just not so great at dealing with the unknown. So now that I KNOW how many of my internal organs I have to sell, I’m much more at peace.
Atleast now I know I am not the only one freaking out about this! I have been dreading the moment when i get that scary number back… I did contract work because it was better than unemployment and continued because when i found a job it barely paid anything to live on… Best Wishes! You’ll do great!
I’m not sure how much you’re talking about, but one year I owed around $1,000 and I did have to enter into a payment plan with the governement. Honestly, I didn’t feel like it was bad at all, I can’t remember what the monthly late penalty charge was (on top of the actual amount I owed) but it wasn’t back-breaking. As you can imagine, I was pretty broke that year, and yet the payment plan didn’t preclude me from still doing some frivolous things like eat out, keep cable/internet, etc. I know it sucks to have any kind of debt, but I would personally do the payment plan before I would, say, put it on a credit card or borrow from a friend.
I don’t understand how it’s possible to have been unemployed and still owe money. Unless you got a good severence.
How’s your credit? If it’s very good you might be able to get a loan (do you belong to a credit union?) to pay it off. Interest rates are decent and it might be a cheaper solution.
Good luck.
It’s possible if you’re doing freelance work, which doesn’t have automatic withholdings. 1099 work is taxed at your base rate (20-25% in most cases) PLUS a “self employment tax” of 15.3%. It’s absolutely absurd if you ask me.
Nice reference to “Bad Idea Jeans”! I didn’t even know what they were until about a month ago! A co-worker brought it up and we had to YouTube it… hilarious.
Ug – that’s so frustrating. That stupid self-employment tax is ridiculous. I don’t know how any full-time freelancer makes a living! Can you file for an extension?
I actually diligently pay my quarterlies every 3 months, and then I go to do our taxes only to realize that my husband had somehow chosen to withhold as an “M3″ on his paychecks (we both work and have no kids – “M1″ would have been sufficient). So now I have to cut the US Treasury a check for $750. Luckily we don’t owe a penalty on top of it, but still, ouch. I feel for you. I’ll be keeping a closer watch on his paystubs in the future.
I did the IRS Payment Plan, it’s not so bad.
last year, my husband screwed up his federal withholding amount with his employer. Here we are, thinking we MIGHT owe $1,000 or maybe even $2,000 in taxes…we owed $6,000. I wanted to KILL HIM. And myself, for not noticing that his take-home pay was more than it should have been (although the amount was small enough in each paycheck that it wasn’t hugely obvious).
I feel your pain. Here’s hoping it’s a number you can work off in a night or two…just kidding. Here’s hoping it’s not as bad as you’re anticipating, or that the payment plan isn’t that terrible.
last year, my husband screwed up his federal withholding amount with his employer. Here we are, thinking we MIGHT owe $1,000 or maybe even $2,000 in taxes…we owed $6,000. I wanted to KILL HIM. And myself, for not noticing that his take-home pay was more than it should have been (although the amount was small enough in each paycheck that it wasn’t hugely obvious).
I feel your pain. Here’s hoping it’s a number you can work off in a night or two…just kidding. Here’s hoping it’s not as bad as you’re anticipating, or that the payment plan isn’t that terrible.
last year, my husband screwed up his federal withholding amount with his employer. Here we are, thinking we MIGHT owe $1,000 or maybe even $2,000 in taxes…we owed $6,000. I wanted to KILL HIM. And myself, for not noticing that his take-home pay was more than it should have been (although the amount was small enough in each paycheck that it wasn’t hugely obvious).
I feel your pain. Here’s hoping it’s a number you can work off in a night or two…just kidding. Here’s hoping it’s not as bad as you’re anticipating, or that the payment plan isn’t that terrible.
last year, my husband screwed up his federal withholding amount with his employer. Here we are, thinking we MIGHT owe $1,000 or maybe even $2,000 in taxes…we owed $6,000. I wanted to KILL HIM. And myself, for not noticing that his take-home pay was more than it should have been (although the amount was small enough in each paycheck that it wasn’t hugely obvious).
I feel your pain. Here’s hoping it’s a number you can work off in a night or two…just kidding. Here’s hoping it’s not as bad as you’re anticipating, or that the payment plan isn’t that terrible.
Thank God for Canadian taxes! They tax us so much off our pay cheques that, if you contribute just enough to your retirement savings plan, you end up getting a refund. Yay
I love when my government sends me a cheque in the mail. Fish, move here and bring the Dork Lord and the kids with you.
Fish, payment plans with the IRS aren’t bad at all! (Unfortunately I speak from experience, having been audited for the two years I spent waiting tables in NYC. Not fun.) They will totally work with you, and the payback rates have really low interest. They just want their money, and they’re willing to work with you on how you can pay it, even if you can only make really low payments/month. Just pay off what you owe slowly and don’t worry about it!
You can file for an extension, and then you will have a few extra months to come up with the cash without having to enter into a payment plan. As far as I know, there is no penalty for doing so, but you might want to double check on that.
I’m in the same boat, but lucky and grateful to currently have a full time job. I’m wiping out my 401k, but oh well. Hang in there.
You have to state on the extension what you are going to owe in taxes – and if you owe, you have to send that in with the extension.
Even if you file an extension, the taxes you owe are due at the time you should have filed originally. You will be charged penalties and interest from the time that you should have filed, so might as well do it on time.
That being said, enter into a payment plan. I ended up owing a gazillion dollars to the government thanks to self employment for three years and I did not have the money to pay it. I ended up paying about double after the fines and interest, but only because I didn’t start paying the debt as soon as I incurred it. If I had started making payments immediately instead of 5 years later, it wouldn’t have been bad at all.
Put me in the catagory that didn’t think payments to the IRS was too bad either.
I did freelance for awhile also, but after paying an ungodly sum to the IRS, I got a letter months later that said I still owed. Everybody told me to not get into bed with the IRS no matter what; beg, borrow, steal, etc. Unfortunately said notice was about a month after a major break-up (after 9.5 years), and he kept everything, so I didn’t have anyone to beg/borrow/steal from!
The interest rates weren’t terribly heinous or anything, and they were really flexible actually. Basically, you tell them “I can pay $x” (I think the lowest option was $25 a month), and they set it up for however long it would take to pay it off at that amount. There’s no penalty for paying it off earlier than that though. However, if you get a refund the following year, they’ll pay off what you owe before you get any money back, regardless of if you have a payment plan.
Uh-oh. My husband was out of work for 6 months last year, did a little freelance work, got hired again in November right before the economy tanked, then just got cut AGAIN when his new company lost a bunch of clients and had layoffs last week. I just assumed we’d be OK tax wise b/c he made so darn little overall . . . Sucks for you and I’m sorry, but thanks for the cautionary tale that’s making me look into this!!!
oh man, I feel your pain! My husband is a CPA and even with all he knows about taxes and how we pay them, we still sweat it out every year at tax time to see if we did it right the year before.
same thing happened to me as this is the first year i filed a 1099 and have never paid the irs before. not so fun. alas, we are not alone based on the comments above.
I know a couple of things about this that may ease the pain somewhat.
First of all, the so-called “self-employment” tax is only a wage slave’s employer’s share of Social Security and Medicare tax. It’s not an additional or penalty tax on the self-employed at all. People with jobs pay it, too, in the sense that their employers have to pay it in order to employ them. YOu could think of it as part of the bennie package on a job.
Secondly (I am prepared for your laughter), the IRS is trying to reframe its relationship with taxpayers. Their current mission statements and strategic chewing gum are all about considering the taxpayer experience and keeping the current crisis in mind as they work with people. They used to routinely show up and seize assets early in a tax debt situation. Not any more. They’ll talk to you. Really.
Cut them some slack when you call, if only because you are probably talking to a new hire. The work is seasonal, so there’s lots of turnover. That, and their primary account management software dates from the Johnson administration: all-caps green text on black screens, radical abbreviation unto gibberish, and literally thousands of numerical and initial “codes” for a couple hundred categories that XML could reduce to a handful. So it will take them a few minutes to decipher your information. Be kind, and they will, too.