“Donna”, not her real name, had not filed a tax return since her divorce. She ran a small business, where she was the only employee, and worked hard. But the emotional toll from the divorce was such that she didn’t file her tax return for the first year. After that, each year also slipped by, unfiled. By the time she came to me, 6 years had never been filed.
This was the end of her rope. Because the lack of any recent tax returns meant she could not apply for various county programs, buy a house, and had begun to threaten the line of credit her business had for working capital. And then she lost a scholarship for her daughter for a high school program. Her daughter is a bright girl, and a terrific student, the kind that any mother would love to have and try to afford all the educational opportunities she could. This scholarship was just such an opportunity. And now she lost it.
But she was in my office. We prepared the returns, and as is often the case, she owed some real money. Some years had been refunds and some had tax due. But what many people don’t realize is that each year you owe money and don’t file, compounds quickly into twice and three times the tax that existed originally.
That happened to “Donna”.
Keep in mind, “Donna” is a single mom with no significant assets, rents the house she and her daughter live in, doesn’t have a college degree, receives no child support from her ex-husband, and makes just enough each year to squeak by. It fell to me to tell her that the failure to file returns had compounded the tax due, and she now owed slightly more than $30,000 with penalties, but before interest.
To “Donna”, $30,000 might as well be $100,000.
But we don’t just prepare tax returns and leave clients to fend for themselves and seek the governments mercy. So the story doesn’t end there. We then crafted an offer to the IRS to settle this bill for $2,800, and helped her find a loan to pay the one time settlement. “Donna” is all caught up. Her line of credit is no longer at risk for being called by the bank for lack of tax returns, and she can now get new scholarships for her daughter.
Situations are rarely as desperate as we imagine them to be, and by getting the necessary support, a way forward will appear.