Every year, I dread doing our taxes. For a number of reasons, this year I wasn’t able to submit all of our paperwork until the day before they were due. I was stressed to the max and I knew that we’d owe (probably more than we have in previous years). I was right.
Filing Taxes This Year
The biggest difference with filing our taxes this year is that my husband had a notable income. In previous years, he was either out of work or working a low-paying mechanic job ($250-$400 per week). Then he got into freelancing, but that doesn’t always bring in reliable income either. So, for the most part, we lived on what I made.
About a year ago, he was hired on by a multi-national company to write content for car manufacturers like GM, Buick, Ford, Chevy, etc. He’s been doing a fantastic job and it made our finances way easier to manage. We haven’t felt the crunch of living paycheck to paycheck as we did before. However, the increased income had a significant impact on where we landed in the tax brackets.
I work on a 1099 and taxes aren’t taken out. He’s a W2 employee and has taxes taken out, plus all of our health insurance costs. Despite this, we wound up owing about $15K this year in taxes (state and federal combined). We have a portion of this and can make a partial payment, but we will need to set up a payment plan with the IRS to pay off the rest. Thankfully, that’s an option for us.
But what a nightmare! I was expecting to owe, but certainly not this much. My annual earnings actually went down last year, but our household income increased and tax laws changed.
So, now our number one goal is to find a way to start paying this off – and fast. No one wants to be in debt with the IRS – it’s nerve wracking.
Our Plans Moving Forward
We are going to do a few things to get this off our plate quicker and ensure it doesn’t happen again. First, we are going to take an aggressive approach to paying it off. We plan to pay about $500/month towards the debt with the IRS. That’s simply what we can afford right now after clearing out what we had set aside for taxes already ($5,000).
For next year, we plan to try and set aside more money to have for when we file. We are also planning on hiring someone next year so that it’s not so stressful on me (I was in tears doing taxes on Monday). Having a certified professional do them may also help us find additional deductions that we aren’t currently claiming.
Have any of you experienced being in debt with the IRS? I’d love to hear about your experiences and how you got through it.
Amanda Blankenship is the Director of Social Media for District Media. In addition to her duties handling everything social media, she frequently writes for a handful of blogs and loves to share her own personal finance story with others. When she isn’t typing away at her desk, she enjoys spending time with her daughter, husband, and dog. During her free time, you’re likely to find her with her nose in a book, hiking, or playing RPG video games.
Wow, that’s some poor planning. As a freelancer you should be paying quarterly taxes and have a rough idea of what you owe. I thought there was also a requirement that you send in estimated taxes on a quarterly basis. With that high of a balance you must also have late fees for not paying mid-year. I would argue against getting someone to do your taxes and instead learn more about your taxes instead. Taxes are generally pretty simple and should definitely not be a surprise to anyone at the end of the year.
This. When I was freelancing (up until last year), I was required to pay estimated taxes quarterly. I never had any surprises come tax time. I also always do my own taxes.
Absolutely poor planning on our part – a number of things happened last year health wise that prevented us from getting on top of it like we normally do. My husband also didn’t have anything outside of small freelance work prior to getting hired FT last April.
I’ve always been the one to do the taxes, handle finances, etc. I think with how much my health has changed in the last 1.5 years since having my daughter things are suffering a bit on that end. Hiring someone would make it much less stressful for me and we’d probably avoid some of these issues in the future. It’s more about needing the mental break for me than it is that I don’t know how to do my own taxes.
It’s such a sucker punch to see that number, isn’t it? Here’s your motivation to eat most of your meals in so you can put this behind you and also increase your quarterly payments as well.
We have unpredictable income and a withholding structure that doesn’t play nice, so we’ve had some astronomical tax bills as well. It fuels the motivation to get it right the following year for sure.
Definitely! It was a huge motivator for us. We’ve been spending less – though I’ve still got medical issues and medical bills rolling in, which is stressful in addition to this. However, we are chatting with a tax professional and going to get things straightened out.
Yikes, that is a bummer. Not to double bum you out, but we are almost in May so over almost half way done with this tax year. You really need to talk with a tax person NOW about your estimated and quarterlies and get things adjusted for next year. If you haven’t changed anything from last year you are digging another hole as we speak. A tax professional can help you determine what next year will bring and you can change your withholdings/pay your estimated taxes in line with your income and not have another bad surprise.
Agreed! We’ve already been chatting with a tax professional to get us prepared for next year. We are also reconsidering some job/career choices that may make things easier in the long term for us.
I have to ask what tax software you are using? I have done my own taxes for many years and I can tell you that they are not all created equal. Especially when it comes to entrepreneurship. My son was going to use free tax usa one year. He liked that he coud file his Federal for free and state was only a few dollars. I always use Turbo Tax and those that those free sites are not always good at getting every deduction possible covered. I told him to hold off submitting it. I did a double check using Turbo Tax. HIs return increased by over $2k. It may be smart to sit down with an accountant and have them do a double check for you. You might have missed something and can get the return amended. good luck.
The tax preparer that I recently started chatting with suggested I submit an amended return as well. From what he looked at, it seems like I may not have gotten all the deductions we could have claimed. I used Free Tax USA some years ago, but I have used TurboTax for the last two. So, I’m hopeful that I missed something (like you said), but we are also ready to buckle down and pay this off ASAP.