managing tax debt

Managing Tax Debt: The Lady’s Full Monty


While The Lady in the Black has been able to successfully ditch credit card and personal debt, problems managing tax debt continue to plaque her. Today she is going “full monty” and offering full transparency to her tax situation. If you’ve been waiting for a well-endowed woman to strip it down naked, here’s your shot. Cue that funky beat, DJ. Let’s give it up for The Laaaaaddy.

Angels never lie.

The Flimsy Outfit of Excuses

I realize I’m no angel. As my tax professional friend calls people like me, I’m a “tax non-payer.” It’s un-American and makes me a bad citizen. It’s a particular brand of personal shame and I hate it. But there are always excuses, right?

For those of you who went through a terrible separation and divorce, you can understand how taxes take a back burner to other things, like surviving and building a new reality for yourself. I was the one in our marriage to manually file our complex family and business taxes. During our very messy divorce and custody battle, I simply just couldn’t find the energy or the motivation to care.  That excuse applies to the first two years of missed filings. The third? I just felt so behind and embarrassed and another year slid by.

At year 4, I knew I had to do something quick. So I loaded up TurboTax and jammed out 3 years worth of returns. It is worth noting that I had “misplaced” that first year’s paperwork (2011) so the Feds “filed” for me. The balance for those 4 years was somewhere in the $30,000 range.

I recently found my missing paperwork and hired a professional to file a proper return for the now only remaining non-filed return. Fortunately, there was a big adjustment in what was owed. In fact, they owed me for that year (but wouldn’t pay since it’s outside a 3-year window.) Whatever. It was a huge win.

Whoa. Maybe that’s a bit mcuh.

Strippin’ It Down

Ready to dig into my dirty little secret? Let’s drop it low.

Tax Years 2011-2014
  • I owe Feds a revised total of $18,598.
    • There is some debate on what is still owed for 2011.
    • I have a current installment agreement in place at $400/month, which equates to 4 years until payoff.
  • I have a CA State Tax lien at about $6,000.
    • I have a current installment agreement in place at $200/month.
    • This state debt may be zeroed out (or nearly) once a correction to my Fed return hits them.
Tax Year 2015
  • Somehow my electronic filing through HR Block failed and I was forced to file paper returns late.
  • According to my return, the Feds owe me $995 and Arizona would owe me $151. However, because this will be considered file late, there may be additional interest/penalties.
    • If yes, I’ll have to take up with HR Block because it was supposed to be filed electronically by them. Shouldn’t they be responsible for that? Probably not.
Tax Year 2016
  • It’s still sitting at HR Block, all prepared, not filed. I was already to file on time until they informed me of their $1,000 the day before tax filing deadline. I filed an extension on time and need to file.
  • I believe the Fed balance due is somewhere around $15,000. There’s a big question mark on CA amount due.
Tax Year 2017
  • It’s July and I have not filed/paid any estimated taxes for 2017 as is required by law.
  • I approximate a 2017 tax liability (Fed and state) between $20,000 and $30,000.

That’s a lot of money!

Dancin’ for Dollars

With things the way they are, I need a new plan and quick. Oh, and I need cash, too! Time to dance.

Selecting The Right Tune

After evaluating the current situation from many angles, I have a new strategy in place.

  1. Pay HR Block their fucking ridiculous fee and get paper returns in hand.
  2. Schedule IN PERSON appointments at IRS/CA local offices.
    • Try to resolve 2011 discrepancy.
    • Clear whatever security BS for 2015.
    • File 2016 taxes. Get solid numbers on what is owed.
    • Request any additional remaining balances roll into existing installment plan.
  3. Aggressively save and pay estimated taxes for 2017, as much as possible starting ASAP.
    • Rationale: If I always have a huge tax bill every year, I’ll never be able to pay off the past balance. If I can slow or stop the bleeding, I might be able to begin to repair the wound. Thoughts? 
Targeting The Deep Pockets 
  • I have just over $2000 available in “tax savings” account. $1000 will go to file 2016. $1,000 toward ’17 Q1 estimated payment.
  • I reprioritized my budget and can allocate $1,200/month to tax savings. Where’d I find that much, you ask?
    • August will represent my last payment toward another huge debt, freeing up $900/month.
    • I killed my vacation fund.
    • I stopped my deposit into my HSA for the remainder of the year. (I have a balance of $800 which should cover any medical expenses.)
    • Got aggressive with my “food/entertainment” budget. Good old tightening of the belt.
    • NOTE: $1,200 is a conservative number based on a being able to bill 25 hours/week at current gig. The more hours I bill, the more I can throw toward estimated payments.

What Were You Expecting?

No Touching

Even I know that certain rules apply. Here are my guardrails during this time.

  • I have a $1000 emergency fund but won’t touch that. It’s symbolic and I just moved it to a higher-interest bank. I’m adding $50/month for now during this triage period.
  • I’m continuing to add $120 to my daughter’s college fund. Non-negotiable due to custody arrangement.
  • I have a new life insurance policy that my financial advisor recommended. It’s supposed to help way down the road by providing me dividends and cash-out loans options. However, it is $560/month. She’s suggested I hold onto it. I plan to. Thoughts?
  • I’m continuing my $100 Stash investing experiment until December as planned.
  • I’m continuing my $100 Tip Yourself experiment until December as planned. (I figured this could double as an emergency account, if needed.)

The Final Trick.

The Big Finish

Even after stripping it all down and throwing all my tricks at this, there’s no point in avoiding what damage this has done to my present and future life. Even after the dirty dancing with Uncle Sam ends, what can an old dancer expect from retirement? What’s a Lady to do?

Things I Know I Need to Think About in Parallel to Paying Off My Tax Debt
  • I have no retirement savings. (Well, I don’t think $5,000 counts.) For tax benefits and for my future, everyone is telling me to max out an IRA contribution. (I think that’s about $4,000/year.) This seems like something I can pursue once I get this tax mess in a better place. Thoughts? 
  • I want to be clear of debt in 4-5 years so I can invest in some property. I could rent it to a friend/relative to cover the mortgage and increase equity for when I’m ready to make the “big move” in 9-10 years. In 10 years, I want my dream house….or at least a starter dream house.
  • I have 10 years to get my entire financial picture turned around. In 10 years, my daughter will graduate and my life becomes more my own. I will VERY likely relocate to a less expensive region of the country.


Sad truth? This lady is not yet The Lady in the Black. She is still dressed in red…and not the sexy lacy kind. It’s the gruesome bleeding debt from your eye sockets kind of red. Tax debt is it’s own breed of evil and, for those of you with me I’ll just say “it fucking sucks. Hang in there.”

But as with almost everything in life, tax debt can be conquered. My attitude is better now that I have a plan in place. Will there be changes to the plan? Sure. Absolutely.

I have a lot of dancing still to do. Fortunately, this old Lady still has a few funky moves.

If you have opinions or advice, I welcome them.

Just don’t forget to bring lots of ones.

Let’s Do This.





  1. Keep on trucking. It is very very stressful but if you have a plan (as it seems you do) then take the slow and steady steps to get out of the red! Good luck.

  2. Eek, I feel stressed out for you! I hate dealing with tax stuff. I’m not that familiar with the US tax system (Canadian) but it doesn’t sound simple. At least you have a plan in motion, that’s the hardest part…just keep taking it one step at a time and you’ll eventually get it all figured out.

  3. Damn! I wish I had some advice to offer. But since I suck at taxes anyway (it helps having an accountant in the family), and am also in Canada where things seem to be a lot different in the tax realm…

    The only thing I have to offer is, youch, that sucks : / Though I think paying off 2017 might be a good way to stop the snowballing of this and future years? It might be a personal win that’ll help morale. But I think approaching it like any debt would be the best bet – pay off the most expensive / high-interest one and go from there. I’m glad they do repayment plans, and I hope they end up rolling all the unknowns into the one you already have!

  4. Is there a way to just tell H&R Block to screw off and just do the taxes yourself? That fee seems down right predatory, and I’d want to refuse to pay it. Great article by the way, and sounds like you’ve got a plan which is the biggest thing!

    1. Well, I paid it but I WON’T be going back. Absolutely ridiculous! It’s all part of the learning, I suppose. I need to probably spring for the best version TurboTax and learn more about tax law if I’m to do them myself!

  5. Hey Lady, I’m a little late to the party, but I love your site so far! Are you paying interest on your tax debt with your payment plan? I think regardless, you need to start investing for retirement – like yesterday. It’s tempting to throw absolutely everything you can at your tax debt, I know. BUT, there’s nothing better you can do for yourself than invest in your future. By waiting, you’re missing out on the power of compound interest. Since you’re technically self-employed, I’d look into a SEP-IRA. You can contribute up to 25% of your compensation, or $54,000/year, whichever is less. Obviously you have other priorities as well, so 25% is a lot, but i’d recommend 10% of your pay in a low fee account, invested in index funds. The sooner, the better. Good luck! 🙂

    1. Wow. I rarely get advice in my comments. I LOVE IT. It’s funny. I have a phone appointment with my financial advisor next week and that retirement savings is definitely top of my list to discuss. Thanks for your awesome comment!

Leave a Reply

%d bloggers like this: