First Person: I Got Caught Underreporting My Income

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Even though I have a full-time job working for a small telephone company, I also do some freelance writing on the side both as a hobby and to earn some extra income. I've never earned enough to do it full-time. But, I do typically earn enough to have to declare it on my income taxes each year.

I have done that every year since I started writing with the exception of one, 2009. This wasn't something that was intentional. I just somehow forgot to enter in that income when I was filing my taxes online (I think my kids might have distracted me).

In fact, I didn't even realize I did this until December of 2010 when, two weeks before Christmas, I received a letter from the Internal Revenue Service saying I had been caught underreporting my income and owed a little over $1,000 in taxes plus penalties and interest.

I know there are plenty of other people out there that have had this happen to them. But, I'm not ashamed to admit this scared me. The letter wasn't overly threatening. But this occurred several months after I had received my tax refund. The money had already been spent, and I didn't have that kind of money just lying around the house and Christmas was just around the corner. I obviously wasn't going to be able to pay it by the due date and didn't know if that meant I would see my wages garnished or if the police would be at my door the next day to arrest me for tax fraud.

It is now a little more than a year later and I'm happy to say I survived unscathed thanks both to me keeping a cool head and to the IRS itself.

I didn't want to spend the holidays worrying and, since the letter gave me to the middle of January to respond, I decided not to do anything with it until after Christmas. The following Monday, I reluctantly dialed the phone number for the IRS and, to my surprise, actually got a friendly voice. The person on the other end explained the process to me and helped me set up a reasonable payment plan that fit my budget. I was even allowed to set up my own monthly due date.

I originally wanted to pay off the amount owed over the course of a few months and set a high monthly payment. However, after about three months, this didn't fit my budget as well as I thought it would and I ended up calling the IRS again. When I called, I was afraid they would tell me I couldn't change my payment. But, instead, I was able to reduce it by half with the understanding that I would pay a bit more in interest since it would take longer to pay off.

As a result of their help and, most importantly, me making that first call, my past due taxes are now paid in full. I can now live my life without having to worry about owing our government money. And, thanks to this hard lesson, I'm a lot more careful when I file my taxes.

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