Submitted by cleaningupmess2023 t3_127wq6i in personalfinance

Long time lurker, first time poster.

W2 employee (35% tax bracket) who, due to a few mistakes I made, find myself in a big hole with the IRS, to the tune of a 20K tax bill for this year.

Mistake 1 - I sold a property that was my primary home inside of two years to capitalize on the equity. I did not realize the impact that capital gain would have

Mistake 2 - I did not maximize my retirement savings (IRA or 401k contributions), and did not have enough withheld from my paycheck.


Mortgage - Owe $272K, value roughly $280K, purchased 5/2022 (height of market)

Credit Cards - Owe $40K, 9.9 and 11.9%

Student Loans - Owe $34K, 5.75 and 13.4%

Auto Loan - Owe $17K, 6.25%, Value $18K


Savings: $6K

Retirement: $19K

I attempted to take a loan out at my bank to handle the IRS debt, however I was denied. I do NOT want to do another withdrawal on my 401(k) if I can avoid it, and my plan does not allow loans (a family member suggested that).



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plowt-kirn t1_jeg66sf wrote

Talk to the IRS. They are actually pretty reasonable and will put you on a payment plan.

And please do something about that credit card debt.


davidmatousek t1_jegwo8i wrote

If I remember correctly, the IRS can set up a payment plan for up to 5 years at the base interest rate without much hassle. Of course it’s smart to choose less time.


rgvtim t1_jeh3ki7 wrote

As long as they don’t think you committed fraud, yea they will work with you. If they think you committed fraud, get an attorney


Rave-Unicorn-Votive t1_jeg6ctr wrote

Get on a payment plan with the IRS and get yourself on an aggressive budget. At ~$250k income this shouldn't be an insurmountable problem.


cleaningupmess2023 OP t1_jeggvyb wrote

Income this year will be about 30% less.


STODracula t1_jegived wrote

At $175k, assuming no family, still a very comfortable income. From your numbers, it seems there's a spending problem.


cleaningupmess2023 OP t1_jeglyx7 wrote

Did not mention in the original post, but 1 child (not married). He lives with her mother.


GrittyGardy t1_jeguo80 wrote

I mean this in the nicest way possible, you make way too much money to be this messed up financially.


Pandasrqt t1_jegyb5u wrote

For real, I'm very curious to know what OP spends their money on to have $40k in CC debt and barely any savings/retirement while making nearly $200k a year. It's actually quite impressive.


WPMO t1_jegysjf wrote

Literally could buy a $1,000 bottle of wine every week and still have more than most people with a family of 3. There must be some incredible unnecessary spending going on.

For financial advice: Identify where your tens of thousands of unnecessary spending is


Pandasrqt t1_jegzuyk wrote

Based on OPs comment (his kid lives with the mom, not married) I'm assuming she's getting a nice child support check from him. But even with that, there should be thousands left over to cover all debts and then some every month.


Full_Prune7491 t1_jeh3ncq wrote

I have to pay child support except the kids and their mother, my wife live with me full time. I just don’t get to call it child support.

This guy makes so much money, has capital gains which means he made money when he sold his house yet is broke. None of this makes any sense. A guy like this usually says he just bought a new truck because he can’t ride his motorcycle because it’s raining and his other car is only for the weekends.

Stop spending money. Pay off your debts. No magic solution.


dakedame t1_jeh4w9x wrote

I had more saved up and less debt than this guy when I was making $15 an hour. He is grossly mismanaging his money.


daaamber t1_jeh0yf5 wrote

Are you paying 30% of your income for child support?


BakerWithDough t1_jeg7zok wrote

You make over $200k and try to capitalize on a quick gain from selling a house that’s not much more than your salary?


jdwazzu61 t1_jeh11ou wrote

While putting next to nothing in retirement accounts. Seems like priorities might be a bit off


frankbeans82 t1_jeh2ch4 wrote

Plus he bought a new home at the height of the market.... so he pretty much gained nothing in that regard.


corrupt_poodle t1_jegt0t9 wrote

I don’t know if I’m more impressed that you have $40k of credit card debt and not drowning, or that your credit card interest rate is only 9.9/11.9% (I’ve only seen credit card interest rates over 21%)!


Kingkwon83 t1_jeh1zcr wrote

Many cards have sub 12% rates if you've had them for many years. It's the newer ones that are too high in interest


TheVermonster t1_jegzohb wrote

I'm wondering if those rates are missing the "+ Prime" part. Even for a non rewards, credit union card those are some low rates.


mrbiggbrain t1_jeh3eq5 wrote

One of my cards is 6.99% Another is 9%. Both have 1.5% rewards and no annual fee.


enNova t1_jeg7ux8 wrote

Talk with the IRS and get on a payment plan. Then, get on a budget to tackle that credit card debt. You've been living above your mean, even with that impressive income.


No-Smell5410 t1_jegrn5f wrote

This is ridiculous. Why are you in so much debt? Get your spending down!!!


CookieAdventure t1_jegjogi wrote

Let’s revisit the home sale.

You currently own a home with a mortgage. What happened to the money from the sale of the previous house?


cleaningupmess2023 OP t1_jeglmj6 wrote

58K of Student loan debt was paid off. What I have left is what remained.


JCDexter t1_jegun9s wrote

Please tell us that it was the 13.4% loans and that you didn't pay off your lowest interest debt. That will be the only silver lining here. Nothing else makes sense.


sirzoop t1_jegzciy wrote

Honestly a respectable answer but in hindsight you need to remember to save money to pay taxes from money you make. Go to the IRS website and set up a payment plan it's pretty easy if you create an account online


STODracula t1_jegigxq wrote

Like others have said, you can go and have a chat with the IRS about a payment plan. Now having said that, you have a whole lot of other issues going on that a long-time lurker would have avoided. First off, I'd lay off using credit cards for a while, pay it off, and try and get your finances under control.


repub2 t1_jegze8o wrote

How do people like this make so much money? You can’t even manage your own finances for f sakes


samgirlearth t1_jegks1w wrote

Where did the money go from selling the house? How do you only have $8k equity in current house?


cleaningupmess2023 OP t1_jeglqyn wrote

58K in student loan debt was paid off.

Bought current home at peak of market last Spring.


geoff5093 t1_jegrirc wrote

So you sold your old house to make a few bucks, then bought at the height of the market at a much higher interest rate? Why? And why would you put $58k towards student loans instead of paying off your credit card debt?


XeoSP t1_jegv7nr wrote

May of 2022 would've been a low interest rate

By "height of the market" he means home price


pragmaticpro t1_jeh4f3q wrote

Student loans aren't always a low interest rate debt like most would expect, especially on private student loans. Not sure if it was the 13% rate OP mentions or another.


samgirlearth t1_jegq9ts wrote

If federal loans you could possibly get a refund since payments are still paused, so that you can pay the tax man


MeanderingJared t1_jeh2876 wrote

You are upper class bro, figure it the fuck out. People making 35k figure out child support and a divorce. I do not understand how someone in your earning tier does not have a solid CPA in your corner to avoid shit like this. You should be taking advantage of tax code at this point.


MidwilguyLA t1_jegps60 wrote

Something doesn’t add up. With that level of income and his so-called finances are a mess like this?? Hmmm


InsayneShane t1_jegyrdl wrote

Was going to provide some advice but the math here doesn't add up. Where the hell is OPs money going?!


Meghanshadow t1_jeh40xy wrote

“I sold my primary house too fast so I could maximize the profit! And somehow the profit evaporated since I cannot pay the $20k unexpected tax. No, I didn’t use that profit to buy my current house - I owe $272k on a $280k house haha. And I don’t have much in savings. Despite being in a tax bracket that means I make At Least $231k/year. And having comparatively tiny student loans.”

I am so confused. Do they empty any savings accounts and investments and light their money on fire quarterly?


firefly20200 t1_jegzp68 wrote

How are you making over $200k a year and only have $6k in savings and $19k in retirement?! Also get that debt under control.


Aeneas21 t1_jegno0g wrote

Look into a pro rated exclusion of the gain from the home sale. Usually it has to be from a job loss or health reasons but there is a lot of wiggle room. Even if you only lived there for 1 year, you could excluden $125,000 of gain.


encoded_cipher t1_jeh06ux wrote

How can you be in 35% tax-bracket and have this much debt? I don't care if I get downvoted into oblivion, but considering the number of stupid decisions you've made in such a short span - you deserve to be in the financial state you are right now.


oraclechicken t1_jegsttd wrote

With that high income and that low of financial prowess, I suggest in addition to the advice to receive here.


simply_bg t1_jeh1nii wrote

Long time lurker? What have you been reading about here?? Certainly not how to be responsible financially


Ambitious_Risk_9460 t1_jegxril wrote

If you are in 35% bracket, you probably have the income to pay it off


beardguy t1_jeh03fc wrote

I had great luck calling the IRS and being overwhelmingly nice and positive. I believe the first thing I said to the nice lady was “hi, my name is beardguy and I really just want to give you money. Help me give you money!” She laughed and said I was an angel and did her best to get me settled.


campmaybuyer t1_jeh3axa wrote

The IRS is easy to work with on payment plans and they don’t want to cause trouble. It’s folks who misrepresent millions of dollars in taxes a year via business activities that they actively go after.


graphixgurl747 t1_jeh30zp wrote

Maybe you should actually pay a professional to get your financial life in order? Seems you have the money and it would be in your best interest.


techn9neiskod t1_jeh53j5 wrote

$40K in consumer debt has me more worried than that IRS bill. But the IRS will work with you if you inform them!


mariajoseh t1_jegvkbt wrote

Payment plan with the IRS and have your employer deduct a little more from your paycheck for taxes so that next year you get a little back and that can go towards the balance you owe.

The IRS payment plans can be easily set up online, I currently have two of them and my husband has like 5.


TacoNomad t1_jeh13w4 wrote

Your ignoring really important factors about why you're in this situation. Step 1, increase your tax withholding with your employer. Stepn2, work out a payment plan to pay this off. If you bought a house under 300k, your not in a hcol area. You're earning over 150k. You can pay off 20k in a few months time.

Be more honest with your situation, set out a budget, cut frivolous spending, pay the irs. Fix it so you're clear next year. It isn't going to be difficult for you.


Pandasrqt t1_jegyx7j wrote

Okay, so if you are telling the full truth here this is manageable. But you NEED to get spending under control to get out of this hole. Getting on a strict budget and monitoring all non-essential spending should be step 1. Call the IRS and get on a payment plan for that $20k. Then prioritize all debts in order of highest interest rate. You can do this, and likely relatively quickly, but you need to get a handle on your finances.

There's no way you should be in this situation with your salary. Get a handle on things and get out of this, you can do it.


douglips t1_jeh5c38 wrote

You haven't given details on the house sale. How much did you pay for the house (i.e. purchase price)? How much did you sell the house for? What years did you buy and sell it?

Are you married?

How old are you?


MIA3D t1_jeh02ws wrote

What’s your income and monthly expense


Typical-Client8688 t1_jeh0o2a wrote

What did you do with the profit you got from selling the property?


maca77aq t1_jeh2xu6 wrote

I found myself owing the IRS 18k last year. What I did was hop on a payment plan. They let you choose the amount you'll pay, so you can pick something manageable. Toss any bonuses and extra cash towards paying it off. You'll accrue interest on the outstanding balance, but it's a small amount to pay and is not capitalized.

You may also want to head over to r/whitecoatinvestor, which is a better forum for people with high incomes who are trying to work through financial questions.


SticknHit t1_jeh510a wrote

When you capitalized on the equity of your first property you sold, what did you profit? What happened to all the money? Just trying to get a better understanding of the situation here. Also just get on a payment plan with the IRS and pay it off.


JohnBoy11BB t1_jeh27qb wrote

I see most people are addressing the IRS issue, and it's a big one, but the credit card debt needs fixed ASAP.

Assuming you make $250k per year, I assume you get about $13k a month. With a mortgage of $280k, your mortgage should be in the range of $1700-$2300 depending on interest rate. That leaves you with ~$11k. Ive never had student loans (GI Bill) so Ill assume a high end of $200/month. $10800 left. I'm leaving out child support, basic monthly expenses, etc.

You should, in theory, be able to comfortably set aside $5k every month to address the CC debt. You could literally knock that $40k out in less than a year! Aside from the tax debt, CCs should be your absolute #1 priority for the foreseeable future along with the problem that got you there in the first place. This looks like the classic lifestyle trap of high income earners. Not trying to be an ass, but this needs to be a wake up call, otherwise you'll end up living paycheck to paycheck while earning more than 98% of most others not being able to enjoy the fruits of your labor.


RLT4456 t1_jeh5gwu wrote

It's still not to late to max out your retirement savings! You have till April 18. Then File an amendment on your tax return. And most importantly just communicate with the IRS. Do not ignore them! I made thaf mistake in my 20s.


boosted5O t1_jegybs2 wrote

You don’t by chance live in California do you? A lot of counties are considered disaster counties and you have 6 more months to pay without penalty. Not sure if other states have this as well. As others have said, try and work on that credit card


DominusInfinitum77 t1_jegyuer wrote

Also I don't think you're paying the 11% on those cards you think you are right now. As interest rates have been raised card providers have been jacking up interest rates as well. You may be paying closer to 18% or higher right now, and considering the balance you hold that's some serious damage. If you have the credit - get yourself into a conventional loan at a lower interest rate with the terms locked in and get the fuck out of that CC debt. That's terrible man I bet that's where most of your money is going - to financiers every month. It looks like you're paying a ton of money in interest every month and you don't have any positive debt to offset that. You could also look into a loan for a basic business such as renting cars on turo or hyrecar or even privately. Or maybe a laundromat or something that will break even this year and begin positive cash flow. I mentioned things that don't require much time or input. Get yourself into enough good debt that it covers your entire bad debt. You don't seem to be moving forward. You seem to be in a state where you're comfortable with how things have been. You're in a really damn good position to move forward though. Start considering that and planning. I know it has nothing to do with this 20k tax bill but you've got a great set up to build on - even being stagnant with debt. Start planning and building my friend! You don't deserve to spend your days working for the future of others.


hfgobx t1_jeh4tq6 wrote

The only answer you need is “talk to the IRS on the phone”. They will help you set up a payment plan. That’s all you need.

Ignore the criticism from Redditors, they have no idea how you feel, nor do they care.


apextek t1_jegy660 wrote

federal mileage rate for business miles is 65.5 cents per mile. Start a small driving business digital log your miles. Defer your tax debt and drive away the debt in mileage.


dakedame t1_jeh3yyb wrote

Use your once-in-a-lifetime tax forgiveness option. That's how I avoided 60k in taxes I owed last year.