The Costly Mistake That Left Me Owing the IRS—and How I’m Fixing It

You know, it’s frustrating because I made 40 grand just in real estate last year 2023, and that didn’t even include my income from teaching. This year, before December even hits, I’ll have hit the 50k mark.

The 40k probably doesn’t sound like a lot to a lot of people, but considering I topped out at $17,000 teaching college level courses, it felt like we were flush with cash. I was warned over and over by a lot of people both in and outside of my brokerage that eventually all Realtors get in trouble with IRS, and to be careful not to be that guy. They even gave me strategies on how not to be that guy.

I even opened a money market, so I could automatically deposit a portion of my commission checks to set aside for end of the year taxes. and at the end of the year to pull out what I needed for taxes. I never got past the $250 that’s still sitting there.

There was, instead, a lot of dining out. A lot of extra grocery store trips. My oldest daughter was accepted to an internship at the American Ballet Company at the Lincoln Center in New York City, which she couldn’t totally afford on her own—even though the internship was a paying gig, her weekly checks were still not enough to cover all the rent.

And oh yeah here’s a thing. Someone forgot to set aside cash for the IRS and now I owe $3000 in taxes that I don’t currently have. So, I am that guy.

Ugh.

First off, I just want to say, I have been using my resources wisely to support my family, even though it’s left me feeling squeezed. It’s tough to balance long-term financial goals like retirement with immediate needs, especially when unexpected expenses pop up.

One time, last year, we had to take our youngest to the ER because she was taking my blood sugar pills and I was taking her estrogen pills—which look exactly identically alike. That was an expensive and unexpected outing.

That $250 might seem small, but it is something.

As for the taxes, well, the IRS trouble is a reality check, but it’s not an insurmountable obstacle. Setting up that automatic draw from my commission checks will be a game-changer. Even a small percentage of each check set aside for taxes can prevent a repeat of last year’s stress.

It’s common to believe that a higher income will automatically translate into greater financial stability. After all, earning more should mean having more to save, invest, and enjoy. However, the psychological impact of increased income can be surprising: instead of feeling secure, you might find yourself still struggling to make ends meet.

When I transitioned from a below poverty teaching wage to a more substantial income from real estate, I felt like a had made a financial breakthrough. But the problem wasn’t the amount of money I was making; it was how that money was managed and the unforeseen expenses that arose.

The increased income was a serious concern of mine. I’d often initiate conversations with my wife so we could get a handle on how to handle the money. But there was always something to spend the money on—a credit card or medical bill, the kids. We had three cars break down on us all pretty much at the same time, which left us without a vehicle for about two weeks.

No matter how much you earn, sudden costs or feeling like you have to catch up on old bills quicker than you normally would (or even should), can deplete your resources and strain your budget.

Additionally, lifestyle inflation can be a silent drain on your finances as well. My favorite place to go was June Cork Pub for their fish and chips, out with my family. Sometimes, I’d get sloppy drunk on their fu-fu drinks. A typical family night out could cost upwards of $150.

Because my income had increased, I thought it’d be okay to take out the family and be a little less frugal. I wanted a lifestyle upgrade. I still do. But dining out more frequently, indulging in new luxuries can quickly erode any extra money you’re bringing in, leaving you with little to show for the increase in income.

Lara and Roger Griffiths, Evelyn Adams, and Tonda Lynn Dickerson—these names might not ring a bell, but they all share one thing in common: they won millions in the lottery, only to lose it all. The Griffiths saw their wealth vanish in a “mysterious house fire.” Adams gambled away her winnings in Atlantic City, while Dickerson was saddled with overwhelming taxes after trying to create a business. Sharon Tirabassi was the single mother who won over $10 million Canadian dollars from the Ontario Lottery and Gaming Corp. She lived large for a while, spending on a big house, luxury cars, designer clothes, extravagant parties, and trips. But within a decade, she was back on the bus, working part-time, and renting her home. You can read more about their stories in Business Insider. The psychological toll of such sudden wealth is immense. Many lottery winners face a whirlwind of emotional and financial challenges. The highs of luxury can quickly spiral into devastating lows, especially when financial management isn’t a priority, or worse—if you know financial management is a priority but you don’t know how to make it a priority.

The key to overcoming these challenges lies in managing your money effectively. It’s not just about how much you earn but how you handle those earnings. Here are a few strategies that might help:

Budgeting and Planning: Establish a detailed budget that includes all potential expenses and savings goals. This helps ensure that increased income translates into tangible financial benefits rather than just higher spending.
Emergency Fund: Build and maintain an emergency fund to cover unexpected costs without disrupting your financial stability.
Financial Goals: Set clear financial goals and create a plan to achieve them. This can provide a sense of direction and purpose, helping you stay focused on long-term security rather than short-term gains.
Avoid Lifestyle Inflation: Be mindful of lifestyle inflation and avoid increasing your spending simply because your income has grown.

That advice is all well and good and easy enough to say and repeat. But in practical terms, it’s not always so easy to set up, especially if you are like me and brand new at setting money aside.

However, the simple act of automating your savings deposits from your paycheck can be a game-changer. It’s one of the easiest yet most effective strategies to ensure you’re consistently saving money, without the stress of having to make that decision every payday.

The beauty of automation lies in its simplicity. This method ensures that your savings grow steadily over time, protecting you from the temptation to spend what you should be saving. The great thing about my money market for example is that if I want to withdraw the cash, it’s not problem, but I have to talk to my financial advisor first so he can release the funds. The problem with that approach though is that I’m friends with my financial advisor, and unless the money is going to be used for what it was intended for, he’s going to have some questions for me. The self-imposed guilt is a kind of accountability hack.

Automated savings is strategy that continues to work in the background, silently contributing to your financial goals. After a while, you don’t even know the money is gone from your paycheck.

Additionally, I already have the money market set up. I only have to walk into my brokerage and hand over the routing and account number. The bank you work with can also set up automatic transfers between your checking and savings accounts. But really, I would search for a high yield savings vehicle.

Besides my money market, which is designed for easy-ish access and to be as liquid as quickly as possible, my wife has a 403b through her 9 to 5 that does a dollar match.

The best first step is probably to have a conversation with a financial advisor you trust.

Listen, financial management is a marathon, not a sprint. It’s all about making incremental adjustments that build towards stability over time. You’re not alone in facing these challenges, and there’s always a path forward, even if it’s not immediately clear.

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