Closing Bank Accounts

I closed my consulting business and took a full-time job in March. Well, "closed" is kind of overstating the case. I emailed my past clients and then shut the door on my home office.

The problem: an outstanding business loan and loaded up credit card. I was a DBA or "doing business as" organization--no incorporation, no limited liability. So I am liable for the business debt personally. And that's OK, because I believe if I borrowed it, I should pay it back.

Only, there is no income to pay off that debt, so it has to come from current earnings.

So today I (figuratively) opened the office door and decided to close my business bank accounts. I had two: one for taxes and one for operations. Seemed like a good idea at the time--I'd sweep money into the tax account when I got a check from a client so that I could afford to pay my quarterly estimated tax payments. Except, I kept dipping into the tax account for operational expenses. My bad.

To do:
Close tax account. Check.
Close operations account. Not so fast.

You see it's linked to the business loan, which is, um, not current.

So Monday, it's on the phone to the business loan people to see if we can work something out.

The Most Embarassing Day of My Life, Or, Everything You Never Wanted to Know about State Tax Wage Levies

I did the wrong thing. My business wasn't generating enough income. I didn't set aside money to pay my state and federal taxes. I borrowed money from one retirement savings account and took early distribution from another (and paid penalties) and used the money to pay some of the taxes, but it wasn't enough.

I got lots of letters from the Departments of Revenue (DOR). I didn't respond to them, because I didn't have the money to pay the back taxes. I intended to someday, but with dwindling business income and an unemployed husband, I didn't even have the money to cover our mortgage and living expenses, let alone pay the overdue taxes.

I took a new job working at a small, family-owned business. The head of human resources is married to the owner and founder. After I had been there a few months, she called me one day. "Polly, I need to meet with you." That's kind of like hearing from your significant other, "Honey, we need to talk." Nothing good can follow.

In the meeting, she told me of the notice she received from the state DOR that they would be garnishing 25 percent of my wages until the back taxes were paid.

She was almost as embarrassed as I was. She said she'd never seen this in the 25 years the company has been in business. She also said, "This is between you and human resources." I don't know what that meant. I still wonder if the company owner knows about this. (Oy.) She couldn't have been nicer. She had no choice but to follow the law.

I contacted the state DOR collections office and after being misdirected twice, hung up on once and navigating voice mail purgatory, I finally got through to someone who agreed to release the levy and set up a payment plan.

The collections agent at the DOR said she could not set up a payment plan until I filed my 2007 tax return. (I had filed a request for extension, not realizing that the automatic extension is denied if you owe back taxes!) Over the weekend, I got my act together and filed my federal and state returns and sent them to this rep's attention. Unfortunately, the next payroll had already been processed, so I the levy was in effect.

The rep had said she would be sending me forms to set up automatic withdrawal from my bank account. I asked if I could download those from the web, but she clearly said she'd have to send them. This was now about two months ago. I've never received those forms. I've tried to go to the DOR website and their telephone payment system to arrange a paymnent plan, but I get a message that my wages are being levied so I'm not eligible. The good news is that the wage levy has removed. The DOR voice mail system does not allow me to phone the collections department directly. I need to dig out my notes from our conversation to find out if the rep gave me a direct line.

Do you need to know a little more about wage garnishments or levys for overdue tax payments? Start here: Small Business News.

Polly's Pointers:

1. Be careful googling for information. You are likely to find a lawyer or other advisor who will be happy to charge you for removing the levy. You may not need one.

2. Call the number on your last notification letter. See what you can work out. You will pay interest and penaties until you are paid off. Don't do what we did.

3. Don't ignore the letters.