Past-due taxes from 2006 and 2007
Original loan length:
until paid off
Remaining loan length: until paid off
Monthly payment: $100
Principal remaining: $3502.61
Interest rate: 5% + 1% per month late. Finding this number is actually insanely challenging, as the IRS site is very labyrinthine and does its best to hide numbers from you to avoid an implied promise of rate (or so I figure).
Description:This is a repayment plan I had started due to a couple of tax bills that we weren't able to pay in full. In both cases, the underpayment was the result of simple lack of knowledge of what impacts our taxes owed, and how much those items would actually impact our taxes.
First, in 2006 we came up at around $4,000 off in our taxes. This was primarily due to some stupidity on my part. I had changed jobs in the middle of the year, and had a number of expenses come up all at once. So instead of rolling over my 401k, I simply took the disbursement and ate the penalty. As I didn't adequately understand the documentation, I thought the penalty (which it seemed to me was extraordinarily severe) included the taxes due on that amount. Obviously I was incorrect. Couple that with incorrect number of allowances, and bam - tax hit. We paid off $2,000 of it right off the bat, then requested a payment agreement. We promptly stopped hearing from the IRS until about 6 months later, when it turned out they had received our payment, but misplaced our tax returns. Of course they were very quick to cash the check we sent them, but they continued to bug us about their mistake for the next two years. We refiled no less than 5 times, and in this case it seemed the fifth time was the charm. By this point, we already had another installment agreement going.
In 2007, there really wasn't much wrong. We got some bad advice on the number of allowances to take, and as such we didn't have enough money taken from our paychecks. This resulted in right around $1800 that we ran short. As we were moving pretty much right at the same time (we closed on our house on April 11th, 2008), we decided to send in a small amount (I think it was like $500 max), and then just wait to start an installment agreement until we could afford it - e.g. as soon as all the traditional "new house crap" sorted itself out. By the time we got the installment agreement going, the IRS had yet again lost our 2006 taxes, so we refiled. Somehow they were magically accepted this time, and we had the amount tacked on to our current installment agreement for 2007.
Plan to payoff:This will be the second debt we tackle, for two reasons. First, the monthly payment is something we can easily afford (it's why we selected that amount), so we have no worries in the immediate future about being able to pay it off. Second, I'm holding out hope that our 2008 returns will wipe out some of this balance. Once I found out about the issue with our allowances/exemptions in 2007, I immediately reduced the number of allowances I was taking at work. So the idea is that this year we'll probably overpay, and according to the installment agreement any returns are first applied to the past due balance before returning to us. The same thing happened with the economic stimulus payment from earlier this year, which was a pleasant surprise (even if it would have been nice to have the cash on hand).
So in any case, this amount is just something we're not too concerned with at the moment. If our returns for this year eliminate the amount due, then great! If not, we need only wait until May, at which point we can accelerate our rate of repayment using the payment from my wife's car that will have just finished. All things held equal, this debt should be gone completely within 12 months. Ideally. Unless we owe on our taxes again, which I am pretty confident we won't but not 100% sure of. Online estimates of the taxes we owe are $15,000 (approx), and I've already had $8,900 deducted from my paycheck over the year, and this isn't counting student loan interest deductions, mortgage interest deductions, property tax deductions, or 401k contributions (not to mention the amount that my wife has paid towards taxes as well). So while it's possible that we may have underpaid yet again, I don't think that will be the case this year. In all honesty, though, getting a handle on this garbage is probably going to be my next target once we've got a handle on our debt.
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