Monday, July 28, 2008

Dealing with the IRS

Someone I know only from a message board is having trouble with the IRS. S/he didn’t get a tax refund, or a Stimulus Rebate. When s/he finally called to ask why, the IRS agent claimed s/he hadn’t filed income taxes this year. Or any other year this millennium. My message board friend freaked out. Because I only know this person from a message board, I’m not sure what steps s/he has taken since then to clear up this mess. But I do know that anybody who has this kind of phone chat with the IRS needs to take action, and fast, because the IRS won’t. In fact, with the seasonal crush of returns to process, the IRS is only now responding to queries sent to them months ago.

It’s common to freak out when the IRS says you haven’t paid your taxes. For years, the IRS cultivated a reaction of fear from the American public, clearly believing that fear alone would ensure that citizens would pay their taxes. Arbitrary audits, punitive audits, ridiculous red tape, and long-delayed or nonexistent responses to taxpayers’ letters were all in the IRS repertoire. And it worked very well, except for one thing. The IRS was wasting taxpayer money in the campaign to terrify ordinary citizens who didn’t owe them anything much in the first place. A few dollars here or there. And the big tax cheaters were still getting away with it. A few years ago, the IRS was forced to make significant changes, including reducing the number of audits. But ordinary Americans do not believe that anything has changed. Ordinary Americans talk to the IRS with fear in their hearts, and open any letter from the IRS with dread.

In my volunteer work as a tax preparer, I see the result of that fear. Many people to whom the IRS owes a refund don’t file, for one reason or another including the difficulty of filling out a tax form. Then they become increasingly terrified, expecting to be horribly punished for not filing. And they could be, because unpaid taxes accrue interest and penalties until they are paid and despite their stated policy, the IRS often does not inform taxpayers when such fees are still accruing. The first time you might know about them is when you don’t get an expected refund because the IRS has diverted it to pay back taxes, interest, and penalties. Not the kind of surprise you want.

Taxpayers only have three years in which to claim a refund, and they often forfeit it. People just barely making enough income to scrape by are afraid that filing will make them owe money, money they can’t pay. The labyrinthine rules for filing a tax return don’t help the situation. Even tax experts find these constantly-changing rules difficult to follow. Plenty of people hate the idea of taxes so much and live such chaotic lives that they try to ignore the IRS completely. But sooner or later, the IRS catches up with them. Some people have said that the Stimulus Rebate was actually the government’s sneaky way of finding people who otherwise weren’t bothering to file or pay taxes. It definitely turned up some elderly people who owed taxes even though they thought they didn’t. Not a victory worth trumpeting about. Especially if the IRS ends up taking back Social Security or government retirement benefits that the government itself paid to people. What’s the point?

Citizens have a duty to pay their taxes and to file their income taxes each year, but the IRS also has a duty to properly handle these filings. The advent of computers has improved the IRS’s efficiency. It is now possible to phone and find out important pieces of information directly, because the IRS agent can call up a computer file. It might not be a fully accurate file, but it’s a beginning. The problem is that the IRS still sends mystifying form letters to people, and then a phone call does not reveal why those letters were generated, or who did it. Take the letter to an elderly lady of 93 that stated the IRS had reason to believe that she had recently served in a combat zone. Oh, really?

What to do for my Internet message board friend? I had a lot of suggestions. If you are having trouble with any aspect of your income taxes, these might help you, too:

1. Call the IRS about your situation and make sure they have your Social Security number correct and that nobody else is using it. Ask them for whatever facts they have, like your address of record, names of employers, and more. Take notes. Call back if you don’t understand any part of it or if you’ve forgotten any part of it. You don’t have to talk to the same agent.
2. Call the IRS again, once you understand what the problem is, and ask them what steps they want you to take to fix it or that you can take to fix it. There may be some forms you’ll have to fill out. You can get those forms at, but you need to know their numbers and names. You also can do a lot via the IRS automated phone system, including requesting copies of your prior returns and W-2s. If you got burned out or flooded out or all your papers were lost in a move, you can reconstruct your records by asking the IRS for theirs. (You can also ask your state tax departments.)
3. Write the IRS, return receipt requested, stating your position and asking for whatever action you want it to take. If you are writing at the height of tax filing season, don’t expect even a form reply for six weeks. And don’t expect a real reply for another six weeks or more.
4. If the matter is urgent, call your Federal congressional representative, outline your problem, and ask for help.
5. If you e-filed, go back to whatever agency did the e-file or sold you the software, and ask for help. But don’t pay for it.
6. If you need verification that you earned income in a certain year and the IRS doesn’t have it, check with the Social Security Administration. They keep records back many years.
7. If the deck seems stacked against you and you can’t seem to make any headway, call a local radio, newspaper, or television action line and ask for help.
8. If the situation warrants it, hire an attorney experienced in dealing with the IRS. Don’t get that name from a television ad, but from your local bar association.
9. Breathe.

Dealing with the IRS requires patience. It can take half an hour on hold just to talk to a live person on the phone. It can take three months to get an answer to a letter. And the IRS still manages somehow not to receive some letters that you send. That has happened to me. But persistence does pay off with the IRS. Turn your energy to improving your situation. Make the informational phone calls, and take notes. Seek assistance from any and all persons and agencies that can help you. The IRS has a person called the Taxpayer Advocate, but you’ll have go several rounds with lower level agents before you are allowed to take your case to that person. Getting that far can take many months or even years. Even so, if you make the effort, you can clear up any problem with the IRS. And you’ll sleep the better for having done so.

Tuesday, July 22, 2008

Brinksmanship is not Income

I’m not proud of this, but at one time in my life, I was in brinksmanship. I was borrowing money from one credit card to pay another. I used free balance transfers (zero fee transfers) to reduce the amount of interest I was paying on the money I owed. At the time, credit card companies had not dared to break into 20% finance charges or more. But I wasn’t satisfied to be paying 18%. So I worked the system, borrowing as much as I could from one card and paying down my balance on another. Since there usually was a six month grace period during which a very low rate of interest would be charged, I simply kept track of when the six months would be up on one balance, and then paid it off with another free transfer and rode the grace period on that card for another six months. This worked only because I paid meticulous attention. If I had had a full time job that paid a decent wage, I wouldn’t have had the time to pay such attention. Or the need to.

Brinksmanship only works for a short period of time. Unless there is some hope of actually paying down the balances, it’s really just a shell game. Moving balances around doesn’t eliminate them. So brinksmanship is at best a temporary plan. While you’re playing it, you’d better have a solution in sight. In my case, more freelance work was on the horizon and then became a reality, so the inevitable crash of the tower of debt was averted. But if I had kept going without a new infusion of cash to pay down my debt, my fine edifice of slick brinksmanship would have crumbled within a few more months.

That’s what you do when you are desperate. But it should not be your only weapon. I used to listen to a radio advice guy late at night who was a font of common sense, Bruce Williams. People would call him up and say they had bought a property and it had a flat roof, and he would say, “That roof is going to leak.” They didn’t want to hear it, but he knew. I remember one time a woman called to say she and her husband had no money. She was a stay-at-home mom, and so on. Turned out, she liked to call her mother every night long distance (this was back when long distance was very expensive) and complain. Williams told her to write Mom letters, and get a nighttime job to pay down their debt. Her husband could watch the kids when he was home. You could tell that this woman did not want to hear it. But his point was, instead of bellyaching, or looking for miracles, go out and change the situation. It was good advice then, and it’s good advice now.

If you’re about to tumble over the brink, grab hold of a branch and pull yourself up. Don’t just let it happen. Brinksmanship, manipulating your debt to reduce the amount of interest you are being charged, is a tool to reduce the financial drag on you. But it won’t get you out of debt. Only additional income will do that. When I was a stay-at-home mom, I seldom met another who wasn’t trying to add to the family income with small part-time gigs. Babysitting, house cleaning, network marketing, freelance writing, racking merchandise, product demonstrating, cashiering, you name it and we did it, all at hours when it wouldn’t upset the family routine. We all knew that additional income was the solution to not having enough money to pay our bills or to pay for the extras our family needed.

So don’t make the mistake of thinking that brinksmanship in any version is going to save you. That includes borrowing from your 401k, real estate shenanigans in which you pull out equity to pay off credit cards, and debt consolidation loans. These only reduce the cost of debt, and will only delay going over the brink. If you can’t drastically reduce your regular expenses and free up money you already have, then the only way to pay down debt is to get additional income.

Friday, July 18, 2008

Gas Costs Revisited

I keep reading the most outlandish suggestions for saving gas. Turning off the car at intersections is my favorite stupid one, probably brought on by the nonactivity of hybrid cars at same. No thanks. When it’s on, I want it to stay on. My big fear with a car is that it won’t start. Or won’t start again. Why multiply the opportunities for that dread event?

But yesterday, I made the effort to fill up on cheaper gas (not by going out of my way, however, which I’ve already proven saves no money). And then I had to use up all my gas savings when a serious car accident closed down the road home. I couldn’t just wait it out by the side of the road; it was 94 degrees out and I had perishable food in my car. In a cooler, it’s true. But a woman sitting alone in her car by the side of a country road as sunset approaches? Not a good idea. What if I couldn’t start my car again? Then I’d be in trouble. Instead I took a detour of several miles.

So here’s my thought: We can try to save gasoline. We can limit our trips and we can plan our itineraries so there are no wasted steps, but chance is still going to rule the outcome. Right now, the stock market is up and oil prices are down. Those two situations have almost nothing to do with me; I’m not much of a consumer, as we know, and my buying behavior is based more on my income than on the price of gasoline. Yet the price of oil and the swing of the stock market are more likely to affect the final cost to me of using my car than anything I can do. Other than leaving it in the garage and hiking the 12 miles to the nearest town wearing a backpack with a cooler inside.

You know that book “Don’t Sweat the Small Stuff” with the subtitle, “It’s all Small Stuff”? Good point.

Saturday, July 12, 2008

Extra Possessions or Extra Money?

If you spend your money on junk, you won’t have money when you need it. But what is junk? A major article in the Washington Post excoriating de-cluttering TV shows and the pathetic people who agree to be on them points out that most ultra-messy houses include vast amounts of what are called “chachkas” (or “tsotchkes”) in Yiddish--a few key words of which anybody who lives in New York for a while picks up.

Basically, we’re talking about decorative items that serve no function or are so overdecorated or designed that they can only appeal to a specific taste. So a chachka is not a simple bowl, for instance, that could hold fruit or cereal or stew. But it could be a purple plastic bowl that changes color and reveals a superhero drawing on the side when hot water and oatmeal are placed in it. More likely, it’s a statue or a plaque. A Star Wars character, or an idealized Irish princess, or even Elvis. Most of us do not own 18th century Meissen porcelain shepherdess statues, painted and gilded and worth thousands of dollars. We own mass-produced junk.

Looking around my office now (because de-cluttering starts at home, after all, and I do not profess to be a goddess of clean surfaces) I see a series of windowsills, bookcase tops, and tables on which I have placed personal memorabilia. Most of it is related to my family or to my travels. On one windowsill alone, I have a flashlight, a keychain from France in the shape of the Eiffel Tower, a wooden ice cream spoon from Japan, a paper fan also from Japan, a blue glass votive candle holder with a tiny Australian flag shoved inside, a clock radio, and two tiny framed photos of my child.

Seems harmless enough, but despite new batteries and bulb, the flashlight doesn’t work. But it’s my oldest flashlight, one I was given as a kid when I was getting up at 5AM in the summer on Sundays to deliver newspapers. Is it functional? No. I’m holding onto a piece of junk because it’s from my childhood. Thus, clutter starts. I know someone who won’t part with a broken light fixture from childhood. It’s rusty, too. It has been sitting in the attic for over 20 years.

The key chain isn’t holding any keys. It’s just there so I have something to play with while I’m on the phone. The fan, the ice cream spoon, and the flag are souvenirs and alternate toys for nervous fingers. The votive candle holder is an attempt to decorate the windowsill. The clock radio works, but at night half the dial is flooded with the radio station playing Delilah, and I despise her. So I ought to give the radio to charity and buy a higher quality radio that will keep her in her place. As for the two photos of my kid, well, I get a pass on them.

There’s a reason for everything. But that’s just one windowsill. Now imagine if I allowed that kind of clutter on every surface in my house. Worse, imagine that I bought the items that created that clutter. New, at stores, used, at garage sales and thrift shops or on eBay. Thus not only would I be cluttering up my home, but I would be paying to do it. Not a good idea.

I once knew a woman who lived in a tiny apartment in New York City. She explained that if she bought a book, she had to get rid of a book. If all of us followed that principle, we wouldn’t have clutter. I’d get rid of an old flashlight every time I bought a new one. And if we managed to sell or give what we disposed of to a good home, the net cost of new possessions would be less. It’s never going to be dollar-for-dollar, though. What can I sell my old flashlight for? It doesn’t work. A keychain from France? A used wooden ice cream spoon from Japan? Despite the myth that everything sells for big money on eBay, junk doesn’t sell anywhere.

Are Americans fixated on having extra of everything? Why must I have three items on my windowsill to occupy my nervous fingers during a phone call? Wouldn’t one be enough? A bookcase top reveals half a dozen tiny statues of turtles, in metal, china, and plastic. Sure, I like turtles. But how many do I need decorating my bookcase? Did I buy all those turtles? Or did I buy one or two, and other people who saw I liked them bought me more? Are we all keeping the consumer economy afloat with purchases of multiples of things that serve no function, such as my turtles, and even of those that do, like flashlights? On extras?

It’s nice to have enough money to fritter it away on little extras like decorative statues or multiple flashlights. But the people who bought the Meissen shepherdesses in the 18th century were the rich. Not the middle class, which disdained ornamentation and was legally barred from it in many countries. So aren’t all these seemingly harmless extras in our possession our attempt to declare that we are rich? Yet the real rich either display genuine Meissen shepherdesses of museum quality or live in starkly modern mansions where no decorative items are strewn about. Most of the rest of us clutter our homes with valueless sentimental junk or useless chachkas.

So here’s a thought about how to reduce the clutter at home. Why don’t I give that flashlight one more try? Move the batteries around, scrape the electrical connections, check the bulb. And if it still doesn’t work, I’ll toss it. And you look around and find something of equivalent or larger size that you are holding onto for similar reasons, and do the same. Then, we’ll both wait a week and see if we actually need to replace what we dumped.

Should I buy another flashlight? Do I need one? It might be a good idea for the next power outage. On the other hand, we just had a long power outage and the first flashlight I found that did work was plenty. I had extra batteries in case I ran it down. But extra flashlights were just that. Extra. Maybe we all need to stop insisting on so many extra possessions in our lives. Maybe then we’d have some extra money.

Tuesday, July 8, 2008

Penny Unwise

A friend who came to visit just gave me a couple of supposedly “instant on” fluorescent light bulbs. Unlike typical fluorescents, when you flip the switch, these turn on without that pause that makes fluorescents so useless in many lighting situations: Stairwells, task lighting, security lighting, and more. But there’s a catch. The instant on bulbs only give a dim wattage at first. Supposedly, 90% of their final wattage. Sure does not feel like it. They come on dim and then they slowly power up. You’ve probably encountered them in hotel rooms. You turn on the lights and think at first that the hotel has only provided a 40 watt bulb and there’s no way you can read by it, let alone see anything in the room clearly. Then, slowly, the lights get brighter. Usually by the time you decide to abandon the room for whatever outside activities there are, because the room is so unappealing.

That’s nice for hotels. They save money when guests don’t use the rooms for much more that storing their luggage and sleeping. But what the heck are we doing trying to hobble ourselves in our homes to save a few pennies of electricity? I have a bulb clamped to a cable in my furnace room. My friend thought that would be a perfect place for the fluorescent bulb. Not at all. I never turn that lamp on unless I am (usually frantically) trying to figure out what catastrophe is occurring in there. I need strong light right away. When water is leaking or machines are acting up, you don’t want to wait to be able to see them as clearly as possible.

Recently I’ve been reading a lot of boneheaded advice about how to save a few pennies on gasoline while driving. The craziest is the dictum to turn off the car while waiting at a stoplight. They did this in Greece when I visited. The Greeks also did not use their headlights. They only used running lights, to save the electricity they obviously needed from their car batteries to keep re-starting their engines. Which of course made it hard to see other cars and a lot more dangerous to drive. Used to be, the Russians didn’t use windshield wipers. At least they had the excuse that wiper blades weren’t commonly available. (Such was life in the totalitarian Soviet Union with its rigid trade barriers. They also couldn’t get bubble gum.) But can you imagine driving in the rain or snow around people not using windshield wipers?

Do you see where I am heading here? There are a lot of legitimate ways to save energy. But there are a lot of stupid ways. I did put compact fluorescents in a lamp that is on a timer. It comes on every evening, for security purposes, in a room that is seldom occupied at night but makes the outside world perceive that someone is at home. I’m saving a few kilowatts and a few pennies. But I could save lots more by not using a timer and by never having the lamp on. Not going to do that. It’s security lighting.

Getting off the grid is probably a smart idea, but most of us don’t want to or can’t afford to spend the $10,000 to $20,000 to get solar panels on the roof and generate our own electricity. And some of us live in places where the public utilities won’t let us do it anyway. Some of us don’t even have a roof with good sun exposure. Meanwhile, tiny economies can help people struggling with enormous power bills. But only a little. I’ve heard advice that we shouldn’t shower or wash our clothes as often. That’s absurd. Water and electricity and even gas are not scarce resources. They are simply becoming expensive ones as the various thieves—-uh, capitalists-—in the free markets run up the prices.

Throughout history, the peasants stank and were dirty. They didn’t have access to enough water or clean clothes. Do we really want to re-brand ourselves as peasants, and revert to that miserable situation?

But I figured out what to do with the fluorescent light bulbs my house guest gave me. I’m putting them in the guest room lamps.