Money Talk: Electronic Payments Best When Paying IRS
Question: I just received a letter from the IRS informing me that I missed a quarterly tax payment last September with several resulting penalties. I made that payment with a check from a securities trust account that I don’t closely monitor, so I didn’t realize the check hadn’t been cashed. The check was placed in a pre-addressed envelope with the IRS payment notice, stamped and deposited at the post office and has never been seen since. Do I have any recourse, and should all payments to the IRS be sent by certified mail with receipt required?
Answer: Electronic payments are typically the best and safest method for getting money to the IRS. Electronic payments generate a digital trail that shows the money leaving your account and landing at the IRS.
If you insist on paying with checks, use certified mail, return receipt requested.
This paper trail isn’t a sure way of proving your case — after all, you could have mailed an empty envelope — but at least you’d have something to show the IRS.
Still, you shouldn’t give up hope of getting the penalties waived, said tax pro Eva Rosenberg, an enrolled agent who publishes the Tax Mama site. You can request a penalty abatement based on “reasonable cause,” Rosenberg said. According to the IRS site, “Reasonable cause relief is generally granted when the taxpayer exercised ordinary business care and prudence in determining his or her tax obligations but nevertheless failed to comply with those obligations.” The IRS may say that you didn’t exercise “ordinary business care and prudence” since you didn’t use certified mail. But you can make the counter-argument that you’ve consistently made previous estimated tax payments this way without incident and this is the first time you’ve encountered a problem.
Rosenberg said the key to prevailing is to keep trying. The IRS may reject your first and second attempts to get a penalty waived but acquiesce on the third, she said.
“Don’t give up after the first two rejections,” Rosenberg said.
One more thing: Given the high rates of identity theft and database breaches, closely monitor all your financial accounts. That means checking them at least monthly, if not weekly. If you have more accounts than you can adequately monitor, consider consolidating accounts.
Question: This is in regard to the reader who created a spreadsheet that he thought showed the advantage of taking Social Security early. I retired at age 62 and am now 69 and have not yet started drawing my benefits. I have never done a spreadsheet to determine the relative advantage in waiting to draw on my personal benefits; I’ve simply assumed there is no advantage or disadvantage, actuarially. That is, whether I took benefits beginning at age 62 or waited, as I’m doing, the total amount I would receive would be the same if I lived an average life expectancy. Given the fact that my wife would be drawing my benefit if I die first, however, it’s clear that my waiting to age 70 to draw my benefits works to our joint advantage. Am I right?
Answer: In the past, the Social Security Administration advised people that they would receive roughly the same amount by starting reduced benefits early as they would by waiting to receive larger amounts, assuming they lived an average life expectancy.
These days, though, longer life expectancies at age 65 mean that most people will live past the “break even” point where waiting for enhanced benefits results in more money over a lifetime than starting early. The break-even point is in one’s late 70s. Men have a 60 percent chance of living to age 80 and women have a 71 percent chance, according to the Society of Actuaries.
When you’re married, you need to think in terms of two life expectancies, because the chances are even better that one of you will live past the break-even point — perhaps well beyond.
With married couples, there’s an 88 percent chance at least one of you will live to 80, a 72 percent chance of at least one spouse living to 85 and a 45 percent chance one will live to 90.
Because a surviving spouse will have to get by on just one Social Security check — either her own or one equal to what her spouse was getting — maximizing at least one benefit makes a lot of sense.
There’s also the idea that Social Security should be used as a kind of longevity insurance. The longer you live, the more likely you are to use up all your other assets, so a bigger check can mean a much better standard of living.
Liz Weston is the author of The 10 Commandments of Money: Survive and Thrive in the New Economy . Questions for possible inclusion in her column may be sent to 3940 Laurel Canyon, No. 238, Studio City, Calif. 91604, or by email at email@example.com. Distributed by No More Red Inc.