Posts tagged with: Taxes

Well Crap

by

It’s been a long time since we’ve had a major financial set-back. A really long time.

In fact, everything has been going rather smooth over the course of the past year or so. Income is up, outflow is down, we just hit the half-way point in our debt reduction journey. Life is good!

Until…..tax time.

We met with a CPA on Friday. Turns out we didn’t have all our sh-t together so we have to round up the last of our documents and get them over to the office early next week. So we don’t have official numbers, but it’s looking like it’s gonna be bad. Like….possibly in the 5-digits level of “bad.” Yeah. We may owe the IRS to the tune of over $10,000. How the f do we owe so much? I don’t even know where to begin.  I  thought my payments through my full-time job would help offset things more than they did. Clearly.

We have a LOT of deductions to claim. We also have tax credits we can claim. We’re not out of hope.

But it felt like I’d been punched in the gut after our CPA meeting. We don’t have $10,000. Not in cash. To owe that much would officially move us BACKWARD in our debt progression. The first backward movement since we started our debt payoff process nearly 3 years ago. We’ve had months of stagnation, but we’ve never gone BACKWARD. Never ADDED to our debt (mortgage not included). But my plan (to have cash or put it on a credit card to buy us an extra month) isn’t going to work if we’re talking about that much money.

We’re scrambling to think of a plan so we can pay with cash and not have to set up a payment plan (accompanied by penalties and interest) with the IRS.

In the meantime, we’ll be having another meeting (or two) with the CPA to figure out exact numbers and the best course of action. I’ve also suspended all non-essential debt-payments so we can pile up some cash. Unfortunately, given my recent agreement with the medical bill place, I’m committed to minimum sized payments of $1215/month through April. That, in addition to my minimum student loan payments, puts us at a minimum of about $2000/month. We’ve only been budgeting $3,000/month toward debt and having a minimum payment of $2000 only leaves us about $1,000/month of “wiggle room” to try to stockpile cash for our upcoming IRS debt payment. It’s not nearly enough. Particularly if we owe in the tens of thousands of dollars. omg. Just saying it makes me sick to my stomach. I hope to God it doesn’t turn out that bad. But, as the saying goes, hope for the best and plan for the worst. So all non-essential spending is DONE. In the meantime, we will hoard and stockpile money as best as we can. We do have an EF ($5,500) and a couple various savings accounts. Though it’s a bit like stealing from Peter to pay Paul. It’s certainly not ideal. But neither is the thought of acquiring more debt. It gives me a headache to even consider the thought.

Many of you had warned that we should beef up our EF now that we’re homeowners. This wasn’t the intended purpose (most commenters were thinking more in-line with needing to repair/replace an old roof or HVAC, etc.)….but now that we’re in this situation, it’s sure making me think about how great it would be to have a full $10,000 EF. This IRS tax problem would be solved (and then the “problem” of re-stocking the EF is much easier and less stressful).

So that’s my “well crap” update. I will bring you a February debt-update (which, as mentioned, is lower than the originally planned $3,000 due to the need to save all non-essential payments for our upcoming tax bill). In the meantime, I’ll just keep putting one foot in front of the other. Hoping for the best. Preparing for the worst. Ugh!


Ashley’s 2016 Taxes

by

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 –

.

.

.

.

.

.

.

.

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!


Paycheck Blunder

by

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?


Tax Setback

by

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?


Interest Payments

by

It’s that time of year again….TAX time!!!

Maybe some think of it as a “fun” time of year, particularly if you are expecting a refund (in which case…why are you doing that?? You’re essentially loaning the government money interest-free for a period of time! Change your withholdings so you end up with a smaller return. That means you’ll get more money in each paycheck!)

For our little family of entrepreneurs (him) and contract workers (me), this time of year isn’t so fun.

We pay estimated quarterly taxes, but last year we had underestimated our taxes and ended up owing a bit when April rolled around. This year, I fear the same thing may have happened. We haven’t finished taxes yet so I don’t know for sure, but I’m a little nervous of the bill we may find ourselves facing. We’ll see. *fingers crossed*

Relatedly, because I’ve started gathering the relevant documents, I’ve seen how much INTEREST we’ve paid this year and it is sickening!

Between student loans, the car loan, and the credit cards (note:  we no longer have credit card debt at this point, but before they were paid in full we did accumulate some interest from them at the beginning of 2014), we ended up paying a total of $5988.95 in interest.

Can you believe it? That’s sooooo much money to be simply giving someone in exchange for them lending us money. It sickens me as I think of all the things we could do with $6,000!

Perhaps not surprisingly, the majority of the interest came from the student loans (just over $3,000), the rest came from the car loan (a little less than $2500) and credit card debt (remaining).

I know you can deduct interest payments for tax purposes*, so that’s what we’re planning to do. Still, I’d much rather pay taxes on that $6,000 of income and get to keep the money in my pocket rather than paying it out as interest. Booo!!!!

Have you started figuring out tax stuff yet? Do you get a refund? How much did you pay in interest last year?

*I should mention that I know next to NOTHING about tax preparation, as I never do my own. Sooooo, don’t take anything I say about taxes as a 100% fact without double-checking for yourself : )


Debt & the City Introduction

by

Note: This post comes from Debt & the City who would like to be the next BAD Blogger. Read her introduction and ask any questions you may have. This is for the new blogger position which you can find out more information about here

That was the name of my old blog so I’m not new to blogging about my debt. At my highest (start of 2012) I had about 26K in credit card debt and 26k in undergrad and grad school loans. That’s a lot of debt! Thankfully, I’m down to approximately 7K in Credit Cards and 19k in loans so you can see I’m motivated.

Let’s talk about me for a second. I’m a typical twenty-something year old with lots of debt that I mostly incurred before I started working full-time. I had absolutely no concept of money management in school and thought that once I got a real job, I’d be able to pay it all off in one year. With that in mind and a job offer in hand, I decided to travel around Europe and “experience the world”. Needless to say, it was a shock to my system to find that i could not find a semi-decent one bedroom apartment in New York City for less than $1500. I got an even bigger shock when I got my first pay check – what do you mean I have to pay state AND city taxes? My plan of paying all my debt off seemed laughable and I literally lived paycheck to paycheck. I tried to focus on paying my debt but struggled with balancing that and enjoying life. My turning point came when I found the world of personal finance and eventually started my old blog.

Now I live in a different (but almost as expensive) city and I can finally see the light at the end of a long and dark tunnel. Having so much debt throughout my early adulthood has held me back from so many things I want to accomplish and I am ready to finally throw the weight off. There are some life decisions I am currently contemplating that might slow my progress down a little but that is still in the works.

I’ve read BAD since the era of Trisha and I don’t think we have really had a younger more urban perspective. I’m not gazelle – I will only read recycled newspapers for entertainment – focused but then again, I did go 6 months without a bed because I didn’t want to spend so I have my moments. I try to balance having a reasonably enjoyable life while getting rid of the debt so that might not be for everyone. I definitely know that I don’t always prioritize the way people expect (plane ticket over couch and dining table anyone?). However, it means that I find creative ways to enjoy myself or make extra money (craigslist is a treasure chest guys).

I’m closer (knock on wood) to the tail end of my journey and would love to share it with the BAD community because i have NEVER in my adult life known what it feels like to get paid and keep all the money (it’s actually scary when I think about it). I should add that I work in the finance/accounting industry so I’m a lover of excel and spreadsheets are my friend.

Hopefully, there are readers out there that can relate and would benefit from my story as I know I have a lot of information to share with you all and I am excited to get some feedback (and advice).


2012 Taxes

by

I have heard from my CPA friend and I am smiling big with gratitude!  Thanks to his guidance upon my ex’s move out, I made major withholding adjustments for the last four months of 2012.   As a result, I will owe less than $500.  I cannot begin to tell you what a relief this is!  And there’s more great news:  I can re-adjust my current withholdings because I was on track to get a refund for 2013!   Answered prayers my friends…answered prayers!  I was having near $900 PER PAYCHECK withheld!  I know I make a good income but losing $1800 per month hurts!  AND, let me just throw my shoulder out here patting myself on the back…I was STILL able to make payments toward debt and not incur any new debt.

I am a new person!  Truly!  I never thought I could do this.  Just a year ago I was spiraling out of control.  Bouncing checks!  Yes, seriously.  Only making minimum payments and sometimes scrounging to do even that!  I didn’t have money left after pay day and could not figure out why!  My debit card was flaming hot with the constant use!  And then I started blogging.  I slowly, SLOWLY started keeping track of every dime I spent and started downsizing my life in every possible way I could think of.  Remember when I went to the hair salon every 6-8 weeks for a $200 cut/color/style?!  My last salon visit was in December and I don’t plan to go back until June.  The examples are many and for those of you who have been reading since the beginning, you’ll surely remember the changes.  Have I hit major bumps in the road?  Uh, yea.  Like a surprise divorce!  And other smaller hiccups too.

I want people who are in debt to see my story!  I want to motivate others and, in turn, be motivated!  It has not and will not be easy but each of us can make changes to turn our sinking financial ship around.  Don’t be afraid and don’t wait another day to start this process.  You will find freedom like you’ve never known.


Pages:1234