Wednesday, November 09, 2011

Tax Consequences

We finally filed our 2010 taxes.  It took 7 months to figure out the consequences of the 1099C we got against Mrs. Lwil’s condo foreclosure.

I had projected that we would owe $8000 this year. The Cancelation of Debt order that we got, from all I’ve read, would have meant $60K in income that we had not accounted for. Cancelation of Debt is the result of our foreclosure from March of 2010.  The condo sold for $110K, but we owed $168K.  I read a lot about different tax strategies designed to deal with this issue, and we strongly considered bankruptcy, insolvency, and a few other ways to write off the income.

We did not qualify for insolvency, and most other write offs seemed to rely on the condo being a primary residence instead of a rental property. WE really weren’t sure what was going to happen.  We turned over all the materials to our tax preparer and let her do her work.

In the end, we received an amazing email.  We were due a refund of $1300 from the IRS, and $400 from the State of MA.  We were thrilled,for about a week.  I drew our emergency fund down in order to pay off some debts that we had been hanging on to. I had allocated our Federal refund towards Christmas, and we were ready to have two great months to end the year.  Unfortunately, our preparer did not inform us that she calculated our Federal taxes as if we pre-paid $2000 in April  In fact, we went back and forth on that amount, and she told us NOT to pay anything. 

I’m struggling on what to do next.  We now owe $700 by the end of the month.  If we had known that, we would not have spent so much of our emergency fund. I feel like the entire time, our preparer didn’t listen to us.  She didn’t keep me in the loop on what was going on.  At the same time, she’s a family friend, and I feel some what obligated to continue to use her.  In each of the last two years, she has made a mistake. These mistakes have cost us a total of $1400.  The worst part is, if she has taken the time to involve me in the process, I would have caught both mistakes.

Finally, I feel good that our taxes are finally complete, and that the mess that was Mrs. Lwil’s condo is forever gone and buried, but I think next year, I have to strongly consider hiring an outside accountant to help with my return.


Shaun @ Smart Family Finance said...

Definitely get outside help. What recourse do you have with family when they make a mistake? At least with a different preparer you can demand a refund for the errors.

Zoie Neala said...

Folks have a lot of false thoughts concerning what the Offer in Compromise course really entails. I assume all those TV ads have led taxpayers into believing that everybody can settle a income tax debt with the IRS. That could not be farther from the facts. Grasp the evidence ahead of applying for this program, before you place yourself in an inferior position.