We continued to live a life of instant gratification and excess for the beginning of 2008.
A few articles ago, I talked about credit card debt and how I never wanted to get into it again after we had dug ourselves out in the early 2000s. Well, Scott had a friend who worked in the mortgage industry in 2007 & 2008, and he told us that having revolving debt on a credit card that you paid on every month actually improved your credit score. Our credit was good, but not great, and we had been talking about moving to a bigger, nicer house. So, as much as I hated it, we started using credit cards again. Scott bought a TV and a few other things on a credit card and we made payments on it, and I had a card I used for gas and a few other things, to try to improve our score. Add that to the ever growing list of mistakes.
Business number 4 continued to hemorrhage more money each year.
We continued to overspend and under save.
And there is one more, huge, glaring, moronic mistake I haven’t told you about yet. The biggest one of all. By an enormous margin.
Two Things In Life Are Certain, Death & Taxes
Back in 2004, when we were still putting money into business number 2, and 2005, when business number 2 was destroyed, but we still had to pay the rent and the insurance company, all of that was being funded by the income Scott and his partner were making from business number 3. And that was a snowball that turned into an avalanche that would take us more than a decade to dig ourselves out of.
In order to fund business number 2, we were not paying our quarterly estimated taxes to the IRS.
If you’ve never earned any money that has not had the taxes taken out before it came to you, let me explain.
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If you work for yourself (or if you work for someone else, but you or they decide not to take out the appropriate amount of taxes you will owe on that money come April 15th), the IRS expects you to make quarterly payments on the amount of money you are estimated to owe on that money. So, if you are estimated to owe $1,000 when you file your taxes on April 15th, you are expected to pay in $250 each quarter. There is more than one very good reason for this. Not doing so can get you behind on your taxes. And there are penalties and interest for not doing it. (In 2005, I was ignorant to all of this. I had only ever worked for other people, and always had more money taken out than was necessary, so I received a refund each year.) Back to how dumb we are.
If we had stopped doing this once business number 2 was folded, I wouldn’t be here warning you of the pitfalls of spending too much money right now. And we could have (if we were smart). But we didn’t (because we weren’t). So, I am.
At first, it wasn’t a problem. The first few years, we would file our taxes on April 15th, and pay the amount we owed (plus the penalty for not paying it when we were supposed to).
Starting in 2006, as business number 3 grew (and especially after business number 4 was started in 2007), and the taxes became more complicated, we started filing an extension each year. Our accountant had to do the business taxes before she could do our personal taxes, and it would take Scott too long to get everything squared away and the get information over to her, so she would file the extension automatically for us. The thing about extensions with the IRS is, they still expect you to pay what you think you owe on April 15th, and then if it’s more than that when you get the paperwork done, you pay the rest (plus penalties and/or interest), and if you overpaid, they send you a refund.
But we didn’t know what we owed. So, we wouldn’t pay until October. With interest and penalties. This is when I started learning we were paying more for not paying on time. And alarm bells started going off in my head. Scott assured me that the interest and penalties amounted to very little, so it was fine, and I listened to him despite my trepidation, and left it at that.
Can you see where this is going?