So I sold some decade-old, underperforming mutual funds in February 2006 and rolled what I got out of them into an IRA.
And either I made some grand assumptions about IRA tax exemptions or my investment guy didn’t fully explain the tax ramifications of selling mutual funds (or some combination of the two), but I never declared the income on the sale.
In my defense, I honestly don’t think I received the 1099s on the mutual funds a year later when it was time to do my 2006 taxes. And since I wasn’t expecting them, I certainly didn’t look for them. Besides, some 1099s are buried in other statements and are easy to miss. Pet peeve!
Imagine my surprise, then, when a couple months ago I got a letter from the IRS—right as this year’s tax season was heating up, natch—demanding $4,749 in back taxes, interest and penalties on the undeclared income. ACK! How am I supposed to pay for shoes now? And show tunes? And firearms?
Never one to panic, I assumed the whole thing was a mixup and I did not, in fact, need to write a check to the government for almost five thousand dollars. Kind of like the time 20 years ago when I got a summons to appear in court to explain my delinquency from traffic school because someone with a license plate one digit different from mine had been cited for an improper lane change and the violation had not only been entered in some database with my license plate number BUT! it had also been mistakenly entered three times and apparently three improper lane changes makes you some devil-in-a-domestic-partnership threat to society. Improper lane changes: the gateway drug to puppy-kicking, child-eating and Huckabee-licking.
Whew! Where was I? Oh, yes: Deal or no Deal has to be the stupidest show on television. Almost as stupid as John Hagee’s unhinged rants about Hurricane Katrina being his god’s punishment for gay stuff. His god who, despite his celebrated powers of omnipotence, obviously has terrible aim since the hurricane left the gay neighborhoods of New Orleans high and dry while it destroyed the poor and black neighborhoods. But apparently facts aren’t all that necessary when you’re a goat-blower who blames the gays for things in a frantic effort to distract people from your goat-ball breath.
Dang. Once again I’ve wandered off topic. Blame the gays! Oh, wait: I was in the middle of explaining why I was pretty sure I didn’t owe the IRS five thousand dollars. It was because the IRS waited a whole two years to contact me about it, and I’d kind of forgotten it had even happened.
But a full three or four hours of phone calls and emails and more phone calls later, I had a good 150 pages of information about the original purchases and subsequent sales of the mutual funds in question. Then I dumped it all on the desk of a tax accountant, who pored through everything and worked his cost-basis magic and finally this morning came up for air with two conclusions: 1) the mutual funds were really, really sucking when I finally sold them and 2) based on the actual losses I incurred, I really owe the IRS a mere (by comparison) $1,168 in taxes, interest and penalties. Which, according to my dubious math skills, is 66% less, or roughly one week’s worth of shoes.
So let this be a lesson to you all: shitty mutual funds + poorly explained tax ramifications = scofflaw. Also: IRS math = never in your favor. One more: tax accountant = lucrative gig. Stay in school, kids!