Dave Says
Advice from Nashville's leading Financial Aid Advisor Dave Ramsey
Author of Financial Peace and The Total Money Makeover
I owe taxes on lost stock money; What can I do?
I have a problem in the sense that I made millions of dollars in the stock market trading on my dad's account. It was mostly technology stock. I was on the margin and the whole thing shorted out. I started with $200,000 and it went up to six million dollars. I didn't realize margin was bad. Of course, everything collapsed and now my accountant is telling me that I, or rather my dad, owe $197,000 in taxes. I haven't filed any returns on this, so about $100,000 is back taxes owed and $97,000 is penalties. We made estimated tax payments along the way, but everything was complicated by all of the trades and we just procrastinated on filing. We just thought the money would be there when we needed to pay it. My dad's not broke, he has $600,000 in real estate investments, but I was doing the trading. Do you know of anything I can do to reduce that $197,000 tax bill?
Ameel in Houston, TX
Dear Ameel,
No. I don't know any way to reduce that bill. However, if I were you I'd get a couple of good CPA firms to go through this with a fine tooth comb and try to find anything you can legally do to reduce this amount owed. I would seek some advice from a tax expert, which I am not. The only thing that's commonly used to reduce tax payments is an OIC - Offer in Compromise. That applies if you're broke - you don't have the money to pay the taxes that you owe - and the IRS writes off part of the tax bill. You have to prove to them that you can't pay and this is not the situation you're in. You're not a candidate for an OIC if your dad was on the margin account because he too officially owes the bill and he has assets. He's got $600,000 in real estate he could sell to pay this. It will be painful, but so was losing six million dollars doing day trading playing with tech stocks. What a nightmare you've been through. That is a lot of Stupid Tax to pay. I've done stupid myself and paid with some zeros on the end, but this is a mess. I'm sorry you're going through this. I'm sure it's put a strain on your relationship with your dad as well.
- Dave
8/24/2004
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