Question

Anonymous Post: Bare with me as this may be long but I need your help digging out of the hole I have created.Anonymous Post:  Bare with me as this may be long but I need your help digging out of the hole I have created. ***Please be kind**** Okay so about 5 years ago I went exempt on my tax withholdings so we could save to buy a house. As thing progressed it never seemed like the right time to reverse it Or well should I say I didn’t know how the bills will get paid without going exempt (honestly it’s been so long idk what my check will look like after taxes). Even though I make about 3x what my husband makes. I have made up my mind and set up that taxes will start coming out my check in March. Long story short, we own the IRS over 10k possibly over 20k when we file this years taxes. We are on a payment plan but it’s still scary. So obviously tax season isn’t a joyous one because we never get a refund. However I do get a generous bonus from my job every year which will be about $8k. I was listening to Dave Ramsey show this morning and he said to jump on the irs debt above all other debt. But we have about $6k in credit card debt which total in minimum monthly payments of $397. So my question is what should I do with the $8k? Our monthly income is about $6k (without taxes) Money expenses are about: $5k (not including food and gas or other budget items. Solely the bills +daycare) •Should I pay off all the credit cards with $6k and put the remainder in an emergency fund. Then use the $397 to add to my monthly IRS payment? •pay $6k to credit cards + $2k to IRS •should I use the $8k on irs? •should I save the $8k to offset the difference of taxes coming out of my check? WHAT SHOULD WE DO? Lastly if you read this all thank you in advance for your help. It’s a pretty embarrassing situation.  

Answer 1

Send the bonus into the IRS. You never want to owe them and the penalty and interest you will get slapped with while paying down the debt will be more than the credit card interest your paying on your credit cards.  

Answer 2

I would hold on to it till you get your check in March and know exactly what your income is vs your budget. Once you see what that check looks like reevaluate you budget and see if you can make cuts etc. If you use it either way before knowing your budget vs income you may find yourself adding to your debt or behind on your bills. I hope that makes sense.  

Answer 3

IRS first

Answer 4

IRS first. Get them paid. Pay the min on the credit card.  

Answer 5

Most of my debt is taxes owed to IRS. Start your emergency fund ($1000 if following DR) minimum payment on credit cards and pay the IRS ASAP! Good luck!  

Answer 6

If you listened to Dave Ramsey perhaps you could reach out to one of their counselors in regards to the IRS issue. Maybe you can get an offer to settle which is less that what you owe. In the meantime I ‘d hold onto the money. Best to you. You can do this!  

Answer 7

If I could pay IRS first- I would RUN that payment in! You want off of their list and out from under their scrutiny as fast as possible!  

Answer 8

Please don’t be embarrassed. It’s so great that you’re tackling a tricky situation. I think if it were me, I wouldn’t spend a penny of the bonus until you have a payment plan set up with the IRS. Then you’ll know what the payments look like and you can better judge if you should throw a chunk at the credit card and/or save some aside for living expenses as well. That being said, I do think that there’s a situation of your living expenses being too high for your new take-home pay amounts. I would encourage you to try everything you can to cut things way back if there’s room to do so. Otherwise some sort of supplemental income to help offset the change in take-home pay? I sure do hope you are able to get things figured out without too much stress! Wishing you the very very best!  

Answer 9

No need to be embarrassed. Option #1 sounds best. Pay off the credit cards and keep 2K as a cushion. Once you pay off the credit acrds you'll feel less stress because you'll have TWO fewer payments on bills. In addition the 2K increases the cushion so you'll feel more at ease with the transition. Then . as u said. you can contribute more to the IRS. Lots of encouragement ❤

Answer 10

I would want the IRS out of my life as fast as possible

Answer 11

As someone who experienced an issue with tax withholding from some previous years, I recommend paying the IRS debt off fast and as soon as possible. I owed 4K at one point which was not only the taxes but fees and penalties. I did not get a return for years and was on a payment plan. I was able to finally pay them off this year and get a small refund. A big burden has been lifted from my shoulders and feel less stressed.  

Answer 12

Don't be embarrassed - you are on the right track trying to get it all figured out and reverse your situation for both you and your family ( husband and kids) and that all takes guts and strength! If you don't have your EF fully funded start there. As DR said take your pulse. if you have a pulse haha you WILL have an emergency at some point so be prepared! Then assess what is the next best step. as quick glance it seems that you should pay off all to the IRS you can to lower that payment as it doesn't seem that you could make a $397 payment every month ( IF your EF is fully funded then maybe. but at quick glance you have less than $1, 000 to use each month after all bills are paid so that $400 is almost half and if you have medical issues / more than your EF and or want to protect some of your EF. ). Just a few thoughts.  

Answer 13

Ask the CC companies for a discount if you pay in full. Some with cut it in half. then take the rest and pay IRS

Answer 14

Pay the IRS first

Answer 15

I would pay the IRS asap! I had to deal with them a couple years ago. Pay them off then hit the credit cards

Answer 16

I say listen to Dave, he’s the expert

Answer 17

Did you end up buying a house? If not, IRS debt is a huge red flag to lenders so you may need to pay that off in order to get a home loan.  

Answer 18

The IRS can and will seize bank accounts and assets. so that’s absolutely something to consider if you plan to make an emergency fund with the money.  

Answer 19

Ooof, I think I'd run this by a CPA. Sometimes they can negotiate with the IRS for you and get bills lowered as well. (My neighbors are going through this and that was their experience with the CPA) I'd probably make minimum payments to CC's and do IRS first but that's totally a fear-based response, my parents had their house & car repossessed for this exact reason. They were more indebted than you however and totally burying their heads in the sand. Good luck, I hope this is all a memory soon!  

Answer 20

Absolutely IRS. Consult a tax professional for assistance in maximizing your paycheck while still fulfilling your tax obligations.  

Answer 21

Consult a tax resolution specialist. They can try and help lower your irs bill or in even some cases get rid of it completely.  

Answer 22

I would pay the IRS first. Dave Ramsey has been giving financial advice for years and has helped millions of people get debt free. There is a reason he says pay the IRS first. They can probably cause more damage than credit card companies

Answer 23

Remember, you can only go to jail for tax fraud or tax evasion. You can’t go to jail for credit card debt. With that being said, the IRS can seize property, the credit card debt can take you to court and garnish wages, the most putting a lien on your home if allowed. That is totally different than seizing property. I would pay the IRS BACK ASAP! Even Dave Ramsey will tell you to pay them first

Answer 24

Have you ever filed an offer and compromise? You could honestly lower the amount you owe the IRS significantly however it is a ONE time only in your life!  

Answer 25

I would see if you could come to a settlement agreement with the IRS. you could possibly be able to give them the $8 or $6 or whatever you can get them to agree to and call it a day. Talk to a CPA though to help you with that.  

Answer 26

Pay of irs before you pay any other debt or any unnecessary shopping.  

Answer 27

Also make extra payments on top of the minimum. My husband and I owed 4. 5k and did a payment plan. Paid minimum balance and it went up to 6000 at one point from interest. Pay it off with your bonuses.  

Answer 28

IRS because they are scary get them out of the way first.  

Answer 29

Once you deal with the bonus, you need a plan to get your expenses down. Did you buy a house and now house poor? You might need to reconsider your living situation and find something more affordable.  

Answer 30

Before you touch any of that money I would go over your budget and fix your withholdings for your paycheck so you break even for 2020 taxes. Before you pay off any debt you need to be sure you can pay your monthly bills. Give it a month or 2 to make sure your new paychecks cover everything. Then keep a portion of the money for your EF. Then pay off the IRS.  

Answer 31

I'm proof that there's a light at the end of the owing IRS tens of thousands tunnel. Paid off and even claiming 0 I still owe them again, luckily it's only 4g compared to 20

Answer 32

Emily Mae.  

Answer 33

1) pay yourself first: get an emergency fund if you don’t have one.  

Answer 34

I like option 1. You are going to be paying interest and its going to be a long time before its paid off. Id def make more of a monthly payment too once you pay off all the credit card debt. As long as you are making the required payments they will leave you alone. Id focus on trying to pay them off afterwards though.  

Answer 35

Option 1 and you need a zero balance budget with your after tax new income to know what changes you need to make to your living expenses.  

Answer 36

Save 1k for your emergency fund, then the rest to pay off IRS. Also I would look over your bills and see where you can cut expenses (cable, gym, too many streaming services).  

Answer 37

Pay the IRS first. It’s too scary owing them.  

Answer 38

Have an EF of $1k first (if you do not already) and then rest go to IRS. You need to get that paid off as soon as possible. It’s not good having to owe them. They can garnish even more from your paychecks and even take away assets.  

Answer 39

I'm sure a few people said this already, and you probably do have a CPA, but definitely talk to them. Sometimes they can get those numbers lowered if you can make a big payment like that.  

Answer 40

IRS DEBT.  

Answer 41

The irs will keep charging fees and interest for a long time. If you go on a payment plan with them they do take into account your current bills. So CC bills might actually help you have a lower minimum payment for them. Good luck

Answer 42

You have to go through your expenses and budget and really slim down. Once they start taking out taxes, you'll probably be in the negative. Time to increase income or cut expenses drastically. Pay the IRS off first and foremost.  

Answer 43

I’m on a payment plan with them, I’ve found it not as bad as credit cards. I pay monthly, interest is 3% and they have been flexible with me, allowing me to skip payments when I don’t get paid in summer and when I was out on maternity leave. Just a few things to consider. I haven’t found them to be scary or unreasonable. I just need to pay what I owe, which I’m doing.  

Answer 44

If it was me, I'd pay credit cards first and then rebudget if I could and send every penny to the IRS. The IRS payment plan isn't as terrible as everyone thinks as long as you NEVER miss a payment and NEVER pay less than your plan without calling. Do keep track of all. of your payments. Do not rely on the irs to do it for you.  

Answer 45

You do not seem to trust Dave Ramsey, he is clear about paying the IRS first. Income tax is clear, you pay tax on your income, you get to choose whether you pay it by the week when you earn it or by the year. You didn’t want to pay it by the week, so you chose To pay yearly. I do not understand why you now do not want to pay the tax due. Are you aware that not paying can result in jail time?  

Comments

@video925 she is planning to pay them based on OP, she’s just figuring out the smartest way to tackle all of her debt.