Friday, June 24, 2005

Ironic, Isn't It

I worked for myself for several years. Part of the drawback is you have to pay quarterly estimated taxes which means you have to guess how much you are going to make at the begining of the year and make quarterly payments on the tax liability of that guess. Well, me being me didn't bother with that the first year I was working for myself, which wasn't that big of a deal because the first 10 months of 2000 I didn't make all that much as a contractor so my tax liability wasn't all that bad. However, in the last two months of the year my income almost tripled because of a nice fat contract I landed. As a result, my tax liability went through the roof and I wasn't even close to being able to meet it.

So I ended up in a whole to the IRS. Everyone has been in a financial whole at one point or another. However, a whole to the IRS is different because:

1) They can take your stuff
2) They assess both penalities and interest
3) They can take your stuff

These whole's also tend to grow larger because the more you make, the more you owe. The short version of all of this is I ended up in a very large whole with the IRS over three years.

Here comes the irony. The area I live in has gone up in value around 30% each year for the past several years. I purchased my town house for $150,000 and similiar town houses to mine are going for about $380,000 right now. A year ago I decided the best way to dig myself out of the tax whole was to leverage the equity in my house, at that point it was about $180,000, to pay off the tax burden. Equity lines of credit are awesome because you get a super low interest rate AND they are tax deductable.

Yup, that's right, that's the irony, I paid my taxes off with a tax deduction. :)



Ben said...

The best way to beat the system is from within, right?

We too are planning on taking advantage of our grossly inflated property value (180K -> 400K+) to pay off a few things and put a nice down payment on a house out in BFE when we move away from this hell-hole in the (hopefully) not-to-distant future.

Ryan said...

Where abouts in BFD? Anything thoughts?

Ben said...

Frostburg/Cumberland area. Looking in Maryland and West Virginia. Nothing's definate yet, but the gears are turning....