Tax Notices: Penalty Removal Request
It’s the time of year where the IRS and state tax agencies send out tax notices for additional tax due, underpayment of estimated payments, etc.
There are usually 3 components of the amount due on a tax notice: Tax liability, interest, penalty.
A tip that I’ve passed along on the podcast that has been really effective for many members of the ChooseFI community is that you can request an “abatement” (removal) of the penalty.
I’m always careful to say this is NOT tax advice to you personally – just what I’ve experienced anecdotally in my career.
The key to an abatement request is to write a short letter (or fill out IRS Form 843) in response to the taxing agency explaining that you made an honest mistake, you did not intend to underpay your tax liability and you have taken steps to make sure it won’t happen in the future.
If owed, you would also include a check for the tax liability and interest along with this abatement request letter.
For specific language to include in your abatement letter, I found many examples by Googling the topic.
2nd Generation FI: Learning to Spend
One of our most important jobs as parents is to teach our kids how to responsibly handle their money. For our family this means them saving at least 50% of the money they get, but also to learn how to spend money on things they value.
Understanding that their “spending” money is finite and therefore a choice to spend on something means it limits their ability to buy other things (opportunity cost) is quite possibly the most critical lesson they can learn.
This past weekend one of my daughters decided they wanted to buy a name-brand outfit, and even though it cost well over $100 and it wasn’t a choice that Laura or I would have made, we didn’t for one second try to talk her out of the purchase because it was her money and her decision.
Even after learning that it represented about a third of her available spending money, she was still quite pleased with the decision.
But she knows it will limit her future ability to spend and we’ll see if there are additional lessons that we can build around this particular topic.
Our family sat down for a few minutes last night to discuss this and we find if you can build these lessons in a fun way, then everyone gets involved and likes to really think about it and talk it through.
Since we’re on the topic of teaching kids about money, I saw this fantastic Twitter thread from Mark Wlosinski with “4 graphics to help you teach your kids about money” that I found really useful.
My Favorite Inexpensive T-Shirts
Since I was just talking about more expensive clothing choices, it reminded me that I occasionally like to answer here in the newsletter one of the most frequent questions I get via email:
“Hey Brad, what are those inexpensive, high-quality t-shirts you’ve talked about on the show a few times?”
I shop at a Clothing Shop Online and they have the Next Level 6210 shirts for about $5.
This is seriously the highest quality t-shirt I’ve ever owned and it comes
in 35+ colors and is unisex.
The Next Level 6200 is my second favorite shirt, and in general I find Next Level to be the best option for these types of shirts.
ChooseFI Community Taking Action This Week
- Tiffany said, “I’ve been reading your newsletter for a while now, but feel that recently my husband and I made a choice that warrants a reply: We started looking for a house this spring – having saved a decent down payment the last two years, and finally settling into one location for our careers. The search was tough, we made offers on several places, were outbid a few times and even won one, but backed out due to some significant repairs we didn’t feel we could financially support right after purchasing. We specified our wish list for a long term home and came to the conclusion that we are not quite financially ready. So instead, since we have a great deal on rent (that cannot be beat by a mortgage), we will continue to save so we have emergency cash even after buying a place, and put an extra $12K towards my student loans this year! Plus, our down payment/emergency fund is sitting in a high yield savings account earning interest – free savings!”
- Sara said, “Our 1% better is that we finally combined our finances. We have been together almost 4 years now and are planning engagement, pre-marital counseling, and marriage. We recently moved from a 680sq ft apartment to a 1500sq ft house that better fit our needs for family. This required us to restructure our finances (rent, bills, increased emergency savings, etc.). In this restructuring we decided to switch from the roommate model of Venmo-ing our portions of bills to combining our finances. This transition has allowed us more clarity into our spending, less money disagreements (!), more partnership, and overall helped us get more on the same page with spending, saving, and overall future goals.”
- Frank said, “One of the best moves I have made is to move to the M1 Spend Platform. All your accounts (Banking, investments and savings) in one place and a 5% APY on a HYSA with no limits or minimums. You should share this with your followers. It is a no brainer. Just have to be a plus member and it is well worth it.”
- Caleb said, “I wanted to share a few 1% events in 2023 that ChooseFI deserves significant credit for inspiring my wife and I to take action on. The first is fixing the trolley on our garage door, saving us a couple hundred dollars in repair fees, and only costing $30 for the part, while learning much more about how garage door functions in the process. Second is spending on the luxury of 80 lb adjustable dumbbells for our home gym. We’ve learned building our strength in our 20s will pay huge long term dividends (shout out Peter Attia), and quite easily provide greater returns (psychologically, physically, and emotionally) than those same $$ funneled into our investments. Lastly, my wife and I hit a net worth of $100k this month at 27 and 25 years old after starting our marriage in $80k of student loan debt. With a good amount of luck and numerous course corrections over the last few years, those 1% items have really started adding up.”
- George said, “My 1% better was teaching a friend about FI. He said he was surprised that his parents were ready to retire based on the amount they had saved. He had heard you need $5 million to retire comfortably. I explained the 4% rule and how $5M would give his parents $200k in annual income, which is way more than they need. We talked a bit more about FI, then I referred him to some good blogs and podcasts. Hopefully he finds it helpful!”
- Kat said, “My 1% better is reaching a $0 net worth?! I finally paid off any and ALL debt since beginning my FI journey years ago with just the tiny baby step of turning on your podcast during my hour long commute home, back when I had no clue what was being discussed 99% of the time. Thank you for the inspiration! I used to daydream about writing you this email and can’t wait to see what other dreams come to life now that I have chosen FI.”
- William said, “My latest 1% better was made possible with one phone call. I use a popular local law firm to lower property taxes on my home and rental properties. For their service, they charge 50% of the estimated savings. When I added my second rental property to their service, I asked if they would consider a 30% fee since I was a loyal customer who wants to expand my portfolio. They said no, but offered 40%. We settled at 35%. I’ll save several hundred dollars each year indefinitely.”