When I was 24 I worked for an IT company that paid me with a 1099. They didn’t take any taxes out and no one told me that I should have paid taxes in, or that I could write off all of my expenses. So I ended up owing the IRS $8000 for the first year and $2000 for the second year. Add penalties and interest and I probably ended up paying about $15,000 before I finally had them paid off. All of this could have been avoided if:
A. I had not gone to H.R. Block to do my taxes
B. Had any idea about what I could write off
C. Had paid in some taxes quarterly
My problem: I knew that there would be some tax issues with how I was being paid, but I didn’t take the time to educate myself on taxes and tax laws. Instead I tried to avoid them and act like the unpaid taxes would just suddenly go away. I even tried an “offer in compromise” where the IRS might take a portion of the total taxes that you owe because they don’t think they can get all of it – well, this happens only 2% of the time and the IRS isn’t in a hurry to get their money, they just want it and so they will gladly allow you to pay small monthly payments with very high interest rates until you have paid them back completely.
So, that being said, if you have to pay in every year, or you don’t get very much back, take some time to find out how to avoid paying so much in taxes. The best way is to get a small personal business or to become an ordained minister. Both are legal ways of writing of various expenses which in the end can save you thousands.
For the last 7 years I have been paying back bad debt that could have been completely avoided if I had found a good CPA or at least done some research on the internet. Anytime that you get a 1099 you can write off mileage and expenses, just be sure to keep a log of everything. Document it in an Excel spreadsheet or a notebook, don’t cheat the government, but let the tax laws work for you.
This website has some helpful tips. I don’t recommend purchasing anything to learn about how to save money with your taxes, but what I do know now after all these years is that having a good credit score and personal business will save you thousands.Â I made some huge financial mistakes in my life, learn from them and don’t make your own!