How One Simple Mistake On My Taxes Left Me With A $10,000 Bill
After paying off $81,000 in student loans, I was elated to be debt-free. While I worked hard at repaying my student loans, I had a “debt-free dream list” of things I was going to do when I was debt-free. One thing on the list was moving back to Los Angeles and leaving the rainy hipster utopia of Portland, Oregon.
In 2016, I moved back to LA, was debt-free and also self-employed! I felt like I accomplished so much and thought “it’ll be smooth sailing from here”.
Upon moving back, I had to fill out a tax registration form for my business. I filled it out, sent it in, and happily crossed it off my to-do list.
A few months later, I get a letter from LA county that I owed $10,000 in back taxes from 2014 and 2015. I knew this was a mistake as I wasn’t even living in Los Angeles at that time so how could I owe taxes? Perplexed, I called the finance office to fix the situation.
As it turns out, I had made a simple tax mistake. On the form, it asked me when I started my business. I answered honestly and said 2014, not realizing they meant when did I start it in California, which was 2016. That one tax mistake triggered a back tax notification. I was told to write a letter explaining my tax mistake and it would be handled. So I wrote the letter, sent it and moved on.
Six months later I get a menacing call. “Is this Melanie Lockert at [address]?” At first, I wanted to hang up thinking it was a scam but when they said my address I stayed on the line.
I hesitantly replied, “Yes.”
“I’m calling on behalf of the City of Los Angeles as you owe $10,000 in back taxes,” the woman on the phone said.
She explained that she was with a debt collection agency and demanded that I pay. I told her that I was up-to-date with my taxes and that this was a mistake. She grilled me as if there were no way that I was wrong. I now understood how aggressive and downright vile debt collectors could be.
I ended the call by saying it was a mistake and that I was going to follow-up with the City of Los Angeles directly. After dealing with more bureaucracy, I finally got someone on the phone. As they went through my file, they saw that I wrote the letter explaining the error many months earlier and apparently it was never processed.
Once it was processed, I made sure to get a written confirmation that I did not have any tax liability in case anyone came hounding me again.
That one simple tax mistake took up so much of my time and I had to go through a lot of hoops to get it resolved.
I thought I was done with simple tax mistakes, but no. Last year, I made a gaffe when making my quarterly payments. As a self-employed person, I pay taxes quarterly so when I made my January payment, I put the current year.
Five months later, I get another letter saying that I owe $5,500 in taxes for the previous year. I work with an accountant to make sure I am paying what I should be, so I was confused. How could this be?
I called him and we figured out the tax mistake. The $5,500 was the amount that I had paid in January. I had put that current year — you know at the start of a year you are adjusting to writing the new year — and forgot that January payments are actually applied to the year before. So I should have put the previous year and not the current one. Once again I had to write a letter, mail it and it took weeks of processing to get it cleared.
So what have I learned from these very simple errors that could have cost me thousands of dollars?