Adventures in Taxland, Part I

Tax season is in full swing. I enjoy doing taxes. Only working nights and weekends, it is difficult to make much money, but the puzzle solving aspect appeals to me. And you get great stories out of it.


Last week I had a client come in whose primary source of income was Social Security disability payments. He lived off about $20,000 a year of tax free income. He also had a small pension from a previous employer.

For reasons that the client was not able to articulate, the client had not been drawing on the pension. When he turned 60, he took a large distribution from the pension, a little over $27,000. But he only had $250 in withholding taken out of the payment. The rest was deposited into his checking account. He knew that the distribution was taxable income, so the client came into the tax office.

The pension distribution was not marked as a lump sum payment, so I don’t know the specifics of payout. The client was a little vague on when he had received the cash. Maybe June, maybe July.

Because of the pension distribution, the client owed about $3000 in taxes for 2012. This included a penalty for failure to pay sufficient withholding. Clients are never too pleased when they learn they owe the IRS money, and this gentleman was no exception. For my part, I was starting to worry about how he was going to pay for the tax prep fees. But it turned out he had brought in enough cash to pay the bill.

When I printed out the payment voucher to send in along with his payments, the client told me he was going to have to set up a payment schedule with the IRS. I was surprised. “I hate it for you that you’re going to have to write that big check, but you must have the money in your checking account, right? You knew this day was coming.”

He looked at me like I was his idiot nephew. “I don’t have any money in my checking account. That money done been spent.”

This guy had received a chunk of money into his account that exceeded his normal annual income, and six months later it was gone.

I took the cash he had brought to pay his tax prep fees, gave him his return, with payment voucher, and wished him well. When he left, he was on his cell phone to his girlfriend, finding out what the monthly amount was on her payment agreement.

Now I have more insight into those stories about lottery winners who run through all the money in just a couple of years. The character of some people is just put together in a way that they will never build any wealth.