I Cannot Afford to Pay My Estimated Quarterly Taxes. What Should I Do?

Posts Tagged ‘divorce and money’

I Cannot Afford to Pay My Estimated Quarterly Taxes. What Should I Do?

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Q: I am Going Through a Very Acrimonious Divorce and Paying Through the Nose. I am a Private Practice Epsychologist. I Usually Had No Problem Paying Estimated Taxes, But Can’t Make Ends Meet Anymore. My Ex Refused to Sign the Joint Return Last Year Which Cost me $20K. I’m Afraid That Every Year I’ll Get Further Behind B/C of the Inability to Pay Estimated Quarterly Taxes. I Can’t Even Function With the Money I Have. What Should I Do?

A: I’m sorry to hear about your bitter divorce and the financial problems you’ve been experiencing. I sympatize with you on both fronts – having been through both ordeals myself. Moreover, I also know from firsthand experience – as an entrepreneur too – how difficult it is to pay those dreaded estimated quarterly taxes.

As you may know, as a self-employed individual you are obligated under the law to pay federal income tax, along with Medicare and Social Security taxes, more commonly called self-employment tax. How much you pay in federal taxes is based on your adjusted gross income. The current rate for self-employment tax is 15.3% on the first $106,800 you earn. Of course, you also have to factor in any required state and local taxes, depending on where you live.

The deadlines for filing and paying your quarterly estimated taxes are: April 15, June 15, September 15 and January 15 (or the next business if those days fall on a Saturday, Sunday or legal holiday).

If you can’t pay your quarterly taxes, don’t make the mistake of not filing at all or ignoring your situation. That will just worsen the problem. A failture to file taxes and pay what you on on time could result in late penalties and interest of 25% or more.

So if you simply don’t have the money, try one of these options:

1) Request an extension of time to pay
Extensions are usually granted for 30 to 120 days. You still get socked with penalties and interest, but they’re usually less than what you pay in an installment plan.

2) Ask for an installment agreement
With an installment agreement, you request a payment plan with the IRS for the most recent tax year. You can get a payment plan for as long as 24 months and not have it impact your credit rating, in terms of the IRS putting a lien against you or reporting you as delinquent to the credit bureaus. If you owe $25,000 or less, just go online to the IRS website and fill out the Online Payment Agreement.

3) Consider a loan to pay your tax bill
A bank loan or home equity loan (if you can get either) will carry a much lower interest rate than paying the IRS off over time under and installment agreement.

4) Ask the IRS about an offer in compromise
The IRS usually only grants these when:
a) a person can show that they have severe economic hardship; or
b) it’s doubtful that the taxpayer could pay what’s owed over the time the IRS has to collect the debt

Start by asking your accountant for which path he/she would recommend, since that individual is likely to be very familiar with your situation. Or, if you don’t use a CPA, call the IRS directly at 800-829-1040.

My Ex-Husband Filed for Bankruptcy. Is There Any Way I Can Get This Off My Credit Report?

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Author: The Money Coach

Q: My Ex-Husband Filed for Bankruptcy Without My Knowledge Before We Divorced in 2008. The Bankruptcy Included a Loan On Which I Was a Co-Signer. Now My Credit Score Has Dropped to 525. Is There Any Way I Can Get This Off My Credit or Prove That He Filed Bankruptcy Without My Knowledge?

A: This is a tough situation – and one that I know seems terribly unfair. That’s why I hate to tell you that, frankly, I don’t know of any way for you to get this information removed from your credit report for two reasons. First, the loan account was already included in your former husband’s bankruptcy filing. That’s a done deal. So even though your ex-spouse filed for bankruptcy without your knowledge, the fact that he went ahead and included in his bankruptcy a loan on which you were a co-signer has dragged you into a messy situation. Additionally, under the law when two people co-sign for a debt, they are each responsible for repaying that debt – even if you have a divorce decree that says he was supposed to pay certain outstanding bills. When joint debts go unpaid, creditors have the legal right to seek repayment from each party, and to report to the credit bureaus that each of those individuals has unpaid debts, or debts in bankruptcy.

Only Time Will Help

Since you said your former husband “is making payments toward the bankruptcy,” I assumed he filed Chapter 13, which is a reorganization plan. Under Chapter 13, you repay some or most of what you owed to creditors over a period of 3 to 5 years. While the bankruptcy is in repayment, that loan and that bankruptcy will continue to show on his credit report, and unfortunately on yours too. The best thing you can do is to manage other aspects of your credit well. Pay all your bills on time. Keep your credit card debt low. And don’t try to open new credit accounts, because inquiries will further lower your credit score. Since you said you wanted to buy a new car, consider forgoing that purchase, or be prepared to save up money over a year or more to buy a car – or to at least have a very big down-payment, which might make a dealer more willing to offer you financing. Over time, the impact of that bankruptcy filing will do less damage to your credit score.

Ask The Money Coach

Posts Tagged ‘divorce and money’

I Cannot Afford to Pay My Estimated Quarterly Taxes. What Should I Do?

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My Ex-Husband Filed for Bankruptcy. Is There Any Way I Can Get This Off My Credit Report?

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