Browsing posts in: Taxes

Ashley’s 2016 Taxes

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Happy Tax Day, friends!

 

Taxes around here have never been fun. Since hubs is self-employed (and until last summer I was working contracted jobs where taxes weren’t withdrawn from paychecks), taxes are always a bit….dicey.

To be fair, we DO make estimated quarterly tax payments. We also make strategic donations that will allow us to take advantage of Arizona’s tax credit (to cover any state income tax liability).

And immediately as soon as I began working full time (started in July 2015), I began deducting HUGE amounts of my paycheck. Like, my net pay is literally half of my gross pay.

I try to take out as much as possible pre-tax:

  • Retirement contributions to our 401(k) (<note, I feel like I call it something different every time I mention it. I looked it up and the mandatory 7% is technically invested into a 401(a). On top of that, I invest another 3% in 403(b) through work. From this point forward, I’ll just refer to this as 401(k) contributions for simplicity’s sake). The mandatory 7% + extra 3% means 10% of my pay is gone right off the top.
  • Medical and dental insurance.
  • Medical savings into a flexible spending account (pre-tax money to be used only for medical purposes, which also includes covering dental work).
  • Childcare savings into a flexible spending account (again, pre-tax money that can only be used for childcare purposes).
  • Parking permit. I have to pay for a faculty parking permit, which is auto-deducted from my paycheck. I double-checked and, yes, even this is listed as being deducted pre-tax.

But even with all this stuff to help offset the tax burden…we still usually end up owing money (ahem….technically prior to the job all we did was the estimated quarterly taxes + Arizona tax credit program. But you get the idea).

Last year we ended up owing big time. To the tune of $3,500. Remember that? Not fun.

We were pretty nervous when the time came for taxes to be calculated this year. Given the new job (and all the additional withholdings/taxes), we had no idea what to expect. We’d continued making estimated quarterly payments on hubs’ income (albeit probably a bit meager compared to where they should have been), but given our giant bill last year it was a bit of a hold-your-breath situation to finally get them sorted out this year.

And – drumroll please –

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We’re officially among the nearly 80% of Americans to receive a tax refund this year!!!! (statistic source).

According to the IRS’s website, the average refund is nearly $3,000 (source). We aren’t anywhere near that figure (we’re receiving under $1,000), but I’m just thrilled to not owe money this year!!! Hallelujah! Last year I made a big deal about not over-paying taxes because it’s essentially an interest-free “loan” to the government until you receive the tax refund. But at that time, several commenters mentioned relying on the refund as though it was a big bonus from work or something similar. I still prefer not over-paying by a large amount (but to each his own, and I can appreciate differing perspectives), so I thought our refund amount was pretty incredible. Our refund is coming mostly from charitable donations we made in order to receive the Arizona tax credit. We pay up to the maximum amount allowed by state, with full knowledge that it would probably be well over our income tax liability and would, therefore, be returned as a tax refund. I LOVE this about our state (first state we’ve lived where we’ve had to pay income tax), because it’s kind of a sneaky way of helping organizations we love and feel passionately about. We give them money, then if we over-pay (which we do), the government reimburses us (not the program, itself). Charitable program still gets their money, so no harm done to them. It’s kind of like picking where we want our tax money to go (on a state level). I’m no tax expert and many stipulations apply, so if you’re curious about it then I’d encourage you to do some research and meet with an accountant or other tax professional. Anywho – that’s where most of our refund is coming from, along with a little overage being returned to us from the federal government for an over-payment of taxes there.

It really puts my mind at ease to know we didn’t have to scramble this month to set up a payment plan or magically pull $3500 from our butts (like we did last year). As our cruise is on the near horizon, I was worried whether we’d have to “borrow” from the cruise fund in order to pay taxes, etc. etc. etc. But, alas, all is well in the world and we continue on with only student loan debts remaining. No “new” tax or IRS-related debts to report. : )

How did tax day go for your and your family this year? Have you filed an extension or working furiously this evening to get taxes wrapped up? Did you get a refund weeks ago? I hope your taxes worked out as well as ours did this year!


Guess What the IRS Sent Me

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Imagine my delight (sarcasm dripping) when I opened some recent mail from the IRS and discovered a bill for …wait for it…$18,000.  Yikes!!!

I didn’t panic as I knew I have the adoption tax credit that can be used over 5 years and this past year was just year two since the adoption was finalized, but YIKES!  That’s a scary feeling.

So I finally took the time to wait an hour on the phone yesterday morning to get to the bottom of the new bill.  Evidently, because the twins’ name change did not happen until this year with the social security administration, the IRS does not believe they are real children.

I understand the confusion as I did put their new legal names with their existing socials on my return.   So I’m not panicked and have a plan to resolve the matter.

They were kind enough to put a hold on my now “late bill” to give me time to resolve this.  I’m sure many people have stories with the IRS.  I’m glad mine was this straightforward.

Public Service Announcement: I shared this information on my Facebook page a while ago when we went to change the twins’ names.  I had hoped to change their social security numbers at the same time due to some unauthorized activity on them right when they were placed with me. (I’ve since put a hold on their credit with all the major agencies.)  So much to my chagrin, that was not an option.  You cannot change an adopted child’s name unless ALL of the following are true: 1) they do not know they are adopted, 2) they do not know their social security numbers and 3) they have never worked with their social security numbers.  Needless to say, changing their numbers was not an option for us so they will have to be super vigilant about maintaining their credit (as all should be these days I suppose.)  But for anyone considering adoption, please be aware of this as I was not nor was the foster care agency here evidently since it was discussed at length with them upon placement when I started getting all sorts of bills, etc.

 


Paycheck Blunder

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I was oh-so-excited for my very first 2-week paycheck that was direct deposited into my account on Friday. I was giddy as a child on Christmas morning opening up my bank account information online only to discover…

I got paid nearly the same for my TWO weeks of work as I did on my last check for ONE week of work (in full honesty, this check was about $80 more than last time’s check…but for a full extra WEEK of work!!!)

My jaw dropped when I saw the deposit.

IMMEDIATELY I logged into my school account to view my paycheck and find out what happened.

And, as it turns out, it’s a combination of things.

First, I hadn’t elected my benefits yet in time to have them withdrawn from my last check. The only withholding it contained was the mandatory 401(a) contribution and my taxes. In contrast, this check had OVER A THOUSAND DOLLARS of deductions (not even including taxes)!!! Ouch! I elected for a LOT of things to be withheld, including: my mandatory 7% 401(a) contribution plus an additional contribution to bring me up to 10% withheld; all our medical, dental, and vision insurances, taxes, and the BIG one is the FSA for dependent child care to the tune of $500/paycheck. That one will serve me in the long-run because it allows me to pay for childcare with pre-tax money. But it still hurts to have that all added up to be over half my paycheck!!! (also, side note: the max I can contribute to the FSA is $5,000/year. So this level of withholding allows me to use $5,000 pre-tax toward childcare in 2015, then I’ll start over again in 2016. Once I hit the $5,000 max limit these withholdings will disappear and I’ll have to pay remaining childcare costs with after-tax money)

Only…those deductions shouldn’t equate to half my paycheck!

After a more careful inspection of my paycheck I realized I’m getting paid the wrong amount!!!

I’d been hired at ($X) over a 9-month contract. That way I can either take summers off or, if there’s additional work, I can get paid extra to work over the summer (essentially securing a 25% “raise” by working over the summer). When I was hired the business manager said that most faculty members prefer to have their pay spread over a full 12 months so they don’t go without pay over the summer. She could show me how to do that. I said thanks, but never pursued it. In my own mind, I’d rather get my money up front within the 9 months. Hubs still gets paid over summer, we could set up some type of “savings” to set aside some money for summer, or I could just hustle and try to teach over the summer for additional income. But, no, I was not a huge fan of just letting them keep my money and divvy it up over 12 months. I want as much as I can get now, thank you very much.

So when I calculated what was going on it was easy to see. Apparently I’d somehow been opted into the 12-month pay cycle instead of getting paid over 9 months as I’d intended. That essentially makes my income drop 25% (since it’s being spread over an additional 3 months).

Soooo, what would you do?

My knee-jerk reaction is to go to the business office and ask them to correct it. I want to get paid over 9 months, not 12. But are there any great reasons to keep my pay over 12 months? Anything I’m overlooking?

One additional piece of information is that if I opt for 9 months of pay, then I get double-dinged for insurance payments in the Spring semester (in order to cover the unpaid summer months). If I stick with the 12-month cycle then the payments stay the same year-round.

Thoughts?


Disappointing Debt Payment

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First, thank you so much for all of your kind comments regarding our family health situation. I’ll try to keep you updated (especially in terms of finances) as I get more information.

In the meantime I wanted to tell you about how this situation, coupled with the no-income May, are going to affect debt payments this month.

It kills me to do this….but I’m going to have to pay only minimums.

We live on last month’s income, so having such a low income for the month of May is really hurting us in June. Hubs’ business drew no income last month (thankfully it didn’t cost us anything so he had enough income to cover his expenses, but no profits were earned). Also, remember how we owe the IRS money? Yeah. We already have some of the money set aside but I was going to use my May paycheck to cover the rest of the bill. BUT, since my paycheck was our only source of income for the month, I’ve put some aside for IRS bill, but I’ve kept some to help cover part of our expenses this month. And we’re raiding our EF hard-core. I’m trying to minimize the amount we have to withdraw from the EF (we’re trying to sell everything possible), but it could come close to being wiped out this month. A very scary feeling.

Given all this (and uncertain future spending) I think that it’s better to keep some money in the bank, pay minimums on current debt, and try to build some reserves this month. Debt payments will be as follows:

  •       PenFed (car payment) = $0 (I’m prepaid ‘till next April so no fees incurred)
  •       Student Loan Payments = $433 (minimum payments:  $77 to ACS ; $356 to Navient)
  •       Medical Bill = $25 (minimum)
  •       Balance transfer = $0 (no interest currently, but this means later payments will need to be higher to cover this month’s deficit)

That’s only $458 in debt payments this month!

I hate it! This is my lowest monthly debt payment in the 15 months I’ve been blogging here.

To compensate I’ve also taken away all monthly savings in their entirety. That means nothing toward:

  •       Cruise 2016 fund
  •       EF (in fact, we’re raiding the EF)
  •       Car repair fund
  •       Health/Dental/Vision fund
  •      Semi-annual fees fund

Usually I put several hundred toward savings each month (up to $1,000), but all savings is being suspended until we can get the financial bleeding to end.

So…minimum debt payments, no savings. Pretty much sums it up.

I’ve got to get back to work – Mondays are always a busy work day for me because assignments are due on Sundays. : ) Still thankful for my job!


April ’15- Month in Review

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I hope everyone is having a fantastic week thus far!

I want to start doing a “month in review” here on BAD to clue everyone in on what’s occurred during the previous month. I think this will help summarize what’s going on in my life as we move forward on my debt reduction journey and allow people to quickly get up to speed that didn’t catch my weekly updates.

To summarize, A LOT occurred in April:

  • I began the month (technically it was March 31st, but let’s call it April) by telling you what’s been bothering me even since I started my hardcore paydown (read it here). This was the hardest to write but most heart felt post to date. Update: I’m starting to realize time is more important than money and or gifts, and spending time with people and giving them a minute or two every couple of days is priceless.
  • I vowed to help my sister by contributing to a 529 in my nephew’s name (read it here). Update: I officially opened up an ESA (not 529) account in my nephew’s name over the weekend. The first contribution will be this Wednesday.
  • In the same post, I decided to re-contribute into my company’s 401K plan (read it here). Update: All the paperwork has been filed and I’m set to start contributing 4% (giving me the max. 2% company match, as well) of my paycheck this Wednesday.
  • I also decided to start budgeting for $50 of “fun” money per month to use to go out with friends (read it here). Update: I’m going to set the $50 aside on the 2nd Wednesday of every month for the following 4 weeks. I don’t have any other bills, except my electric due at this time.
  • I came across a roof leak in our house and freaked out! (read it here) Update: I haven’t opened any ceilings yet (mostly out of fear) but it’s been dry now since the day I ventured upon it. We’ve had some pretty good rainstorms already this year, so if it was from rainwater, I feel it would still be wet. My hunch is still ice dams.
  • I got a work bonus and a raise! (read it here) Update: The bonus was quickly put into my savings account. The raise has amounted to $17 a paycheck, but every additional penny helps.
  • We (GF and I) finally got around to celebrating Valentine’s Day, while also doing a fun little getaway up in Buffalo, NY (read it here).
  • Lastly, I got around to putting  our summer plans down on paper (read it here). It may not seem like much but I have a feeling it’s going to be a busy one this year!

For those interested in where my budget shook out:

April '15

I had some major expenses this month: 1) a tax bill close to $200. Since my I didn’t pay enough taxes last year to match my income (which was greatly increased due to pulling out my retirement fund), I owe the state of PA estimated quarterly taxes this year. 2) Our get-away cost nearly $400 in total 3) I spent more for groceries and dinner than I normally do. After my post to kick-off the month, I’m not too upset about this.

In debt reduction notes:

I reduced it by OVER $2,500!!

Pretty exciting stuff.

However, all good news aside, I had thoughts last week of stopping my debt reduction pay down altogether (obviously I’d still pay the minimums), which would have also meant writing for BAD, too. As I was sitting my car thinking about everything, I couldn’t help but wonder if instead of throwing every extra cent at debt, if I threw every extra cent into my savings. It would build quickly, giving me a large enough windfall to get through any obstacle, and when the balance was big enough, I could use it to pay off all the debt at once, alleviating my stress while giving me comfort that I won’t be in debt forever. After talking it over with GF, the feeling came to pass. With savings interest rates so low, it wouldn’t make a ton of sense mathematically, but, as I’ve always said, being in debt is a psychological, as well as, financial burden.

But what do you think? Do you ever get feelings like this? If so, did you suddenly change course, or did you let it pass? Let me know in the comments!

Have a fantastic week!


Tax Setback

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Husband and I are both self-employed and, therefore, pay our own taxes (as opposed to having taxes withheld from our paycheck). We file “married filing jointly” and I knew that for 2014 we’d be teetering between two tax brackets: between paying 15% and 25%. (Side note: Doesn’t that seem like a huge jump? I don’t want to get political or anything, but the next bracket goes from 25% to 28%, which seems more reasonable. But the 15% to 25% jump hurts! Ouch!). As a result, the amount we paid for estimated quarterly taxes varied (I typically paid about 20ish percent of our income). Well, go figure, that wasn’t enough. And now we’re left with a pretty hefty sized tax bill.

So that’s fun. And something we’ll be dealing with in the coming months. I’ve never had taxes be part of the blog before (I’ve always reported our income “after taxes” – said in quotations, since clearly we weren’t withholding enough for taxes). So, although our tax bill is obviously a new debt, I’m going to keep going how I have been and simply pay that bill off the top of our income rather than putting a new line item (titled taxes) in our monthly debt list.

The big bummer, of course, is that I’ve been crossing my fingers for a pretty profitable next couple of months as income increases a bit. It’s not a guarantee, but last year hubs’ business was booming over the summer. And although I continue to get paid the same as always (same amount per class), the classes I teach over summer are condensed so instead of having my pay spread across four different months I get two lump sums, making two summer months (June and July) look really good for income. (Again – same actual pay per class, but it’s double the sized paycheck as during the Fall or Spring semesters). I still hope to make some big progress with other debts, but this is certainly a bit of a setback as we pay back Uncle Sam to the tune of $3500. Yes. *Groan!!!!* We’ve owed before (we owed a little bit last year), but never to the extent of owing multiple thousands of dollars.

I do have a plan though. I’ve already set aside some money from this month’s income that I’m going to put toward taxes. If I spread this out over three months, the hit won’t be as hard. We have about that amount of time to pay (longer if we pay additional penalties, but I’d like to avoid that and just pay this off ASAP), so about a thousand a month is going to be coming off the top of our income for the next few months. Disperse the pain a bit instead of being hit all at once.

I guess it’s a good thing. New tax bracket means we’ve had a higher income. That’s an awesome thing for us small-business owners! I only hope to continue seeing our income rise across time, so I better get used to seeing a growing level of taxation. ; )

Did you owe the government any money this tax season? If so, how did/do you plan to pay for it?

Did you get a refund? If so, what’d you do with it?


Weekly Debt Update #9- Over the Hump and Future Plans

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Hope everyone had a great weekend and a great start to the week!

I’ve officially paid off more on my student loans than I owe! I can’t describe just how good that feels (but I can try- amazing!) but I still have a lot of work to do…approximately $55,000 of work. So…I don’t really feel much need to celebrate anything, just take a nice long look at how far I’ve come, then put my nose back to the grindstone.

Here’s what my balances look like as of the 21st (my Navient auto-debit date):

Loan NameInterest RateOriginal Balance- May '09Current BalanceTotal Paid Off
Sallie Mae 015.25$27,837.24$24,224.78$3,612.46
Sallie Mae 024.75$22,197.02$19,006.27$3,190.75
Sallie Mae 037.75$20,692.10$0.00
$20,692.10
Sallie Mae 045.75$10,350.18$7,570.60$2,779.58
Sallie Mae 055.25$6,096.03$4,276.91$1,819.12
Sallie Mae 06 and 074.75$6,415.09$0.00$6,415.09
Sallie Mae- DOE 015.25$5,000.00$0.00$5,000.00
Sallie Mae- DOE 025.25$3,000.00$0.00$3,000.00
AES6.8$9,000.00$0.00$9,000.00
TOTALS$110,587.66$55,078.56$55,509.10

Since last week, I’ve been doing some thinking about what I’m going to do after all my (non-mortgage) debt is gone. I know my number one goal is going to save up 1 years worth of expenses. Basing the 1 year on my current expenses, less the student loans, since I’ve lived my entire adult life on a bare bones budget, I have annual expenses around $15,000. If I throw all the money that I put onto my debt into a savings account, it should take me between 5 and 6 months to do this. I also know that after I save this money I want to catch up my retirement that I missed on this past year, which will go to a Roth IRA- roughly $5,000.

So that’s what I know I want to do for sure. After not, I’m not quite sure at all. I developed a future budget that I could use:

Future Budget

Since I haven’t done any spending in the past few years, I’d like to have budget lines for a future vehicle and/or repairs for my current car (which is already at 86K miles), clothing, and some travel. HOWEVER, I also want to pay 2 mortgage payments monthly and continue to save. One of my biggest inspirations to really start hammering the debt was/is Mr. Money Mustache, so I’d really like to continue living a fairly frugal lifestyle while continuing to save as much as possible. Well- I can’t have it all, so I think this budget is a good balance between spending and saving. And the good news is this is all based on my current pay, which, hopefully, I should be making more in a couple years. I also based my income on the fact I’d like to contribute 5% to our company’s 401K plan to get the most match as I can.

I’d like to hear from people in comments on what you did after you paid off debt- were you to worn out from the payoff that you went into spending mode, or did you continue the lifestyle?

On a budget note, here’s where I currently stand in March:

Weekly Update #9

 

There’s couple of big items that came up this month (which weren’t all that unexpected): 1) I had a crown put in at the dentist a couple weeks ago. I have insurance, but I owe %50 out of pocket for this type of work. The cost- $397.50. 2) I filed and paid my local taxes. I knew when I withdrew my government retirement account (back in September) I would owe state and local taxes on it when I filed in the new year so I knew this was coming. I paid $700 to PA last month and $310 to the city of Erie over the weekend. 3) I had to take our one dog to vet a couple of weekends ago to have them look at an ear infection and to get her vaccinations. The costs- $132.02, but me and my GF have a plan set up- if it’s “her” dog (the white one, Harlow) that she brought to the relationship, the GF will take care of the vet bills and vice versa for my dog (Bubba, the black one). Since I took Harlow in while my GF worked, she wrote me a check for the visit that I just deposited yesterday and, thus, isn’t reflected in my budget, yet. 4) I had to put down a $100 deposit for the B&B I’m taking my GF to in April to make up for my V-day gift to her (the poorly timed concert tickets :/). I didn’t expect this since I didn’t remember putting a deposit down the last time I booked a room. O well, it just means I’ll pay less when we check out.

I also spent more in the groceries/eating out category than I normally do. I had to go into work for a couple of weekends this month, so I bought breakfast for myself on the way to make it easier to go in. I also had a surprise visit from one of my best friends (who lives in North Carolina) over this weekend. Didn’t spend to much, but I treated him to lunch at Moe’s while he was passing through town. It only cost $25 and he has paid for me more times than I can count in the past, so I owed it to him.

My slush plan is fairly low, much lower than I’d like it to be:

Slush Fund= $1,129.84 (plus $132.02 when the check clears)

I have future plans to fill it back up, but I’m not going to do anything at the moment, just continue staying the course for now.

Hope everyone has a fantastic week!


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