Wednesday, April 16, 2014

Dave Ramsey says: Pay the IRS first

By Dave Ramsey

Published: Thu, Jan. 23 6:00 a.m. MST

 This Thursday, Jan. 9, 2013 photo, shows a 2013 1040-ES IRS Estimated Tax form at H & R Block tax preparation office in the Echo Park district of Los Angeles.

This Thursday, Jan. 9, 2013 photo, shows a 2013 1040-ES IRS Estimated Tax form at H & R Block tax preparation office in the Echo Park district of Los Angeles.

(Damian Dovarganes, Associated Press)

Dear Dave,

My husband has his own business installing windows. As a result, we now have IRS and state tax debt. We’re managing the payments, but where should these debts be placed in the debt snowball plan?

— Olivia

Dear Olivia,

I don’t usually cheat on the smallest-to-largest progression of the debt snowball, but I’d recommend moving these debts to the top of the list.

Both state and federal taxes come with ridiculous penalties and interest rates, and the authorities at either level have virtually unlimited power at their disposal to mess with your life if something bad happens. The IRS can actually take your money without suing you, so you don’t want to become a blip on their radar screen by being late with payments.

Get it cleaned up as quickly as possible, Olivia. You don’t want to mess around with these guys!

— Dave

Dear Dave,

My husband died eight years ago, and I never closed his bank accounts that were opened when we lived in another state. We lived in Florida before moving to Oregon. I didn’t probate the estate, and he did not have a will. I’m trying to work with the banks to get this settled, but they’re giving me the runaround. Do you have any advice?

— Melinda

Dear Melinda,

The first thing you need to do is contact an attorney who handles estate planning. If the accounts were opened in Florida but you both lived in Oregon at the time of his death, technically the estate would be probated in Oregon. That may be what has to happen. If so, a judge would appoint you as executor. As executor, you can close the accounts and disperse any money to the rightful heir — which is you.

Be prepared, though. It may take somewhere between $250 and $500 in attorney fees and court costs to make this happen. If you’re lucky, you might get a simple motion from the court that would cost you next to nothing. But find a good estate planning attorney who knows Oregon law inside and out. Estate laws and probate laws differ from state to state, and Florida and Oregon both have some weird laws in these areas.

This probably seems like a lot of trouble, but you have to remember the banks are simply trying to protect themselves and follow the law. Anyone could walk in with a death certificate (they’re public record) and claim to be an heir, so they have to have a court document in order to avoid any potential liability.

I’m sorry for your loss, Melinda. I know it still hurts after all this time, but you need to address this as soon as possible. I’m sure it’s what your husband would have wanted.

— Dave

Follow Dave on Twitter at DaveRamsey and on the web at daveramsey.com.

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1. Denverite
Centennial, CO,
Jan. 24, 2014

@Olivia: In addition to getting the taxes paid off, it will pay handsomely to spend some time reviewing tax laws to minimize your tax bite in the future. As a small business owner, I know that just a little bit of planning and paperwork upfront can save you a huge chunk of money every year both at federal and state levels. Dave R. probably has a book on that, and if he doesn't, Kiyosaki and several others do. The $ I don't have to pay in taxes helps my wife raise the kids without having to get a full-time job outside the home herself.