Tax question

[polyhymnia]

So we just did our taxes, and we owe $750 :

What do we need to adjust for next year, so that we don't owe as much??? We have never owed money before (either singly or together) and have always got refunds

Here's the info I think is relevant, I've taken away some of the specifics after getting some good responses.. hope that's ok!

-two adults working full time
-part of one of the incomes is quarterly bonuses
-no children
-minimal investment income
-standard deduction (nothing to itemize)
-small student loan credit thingy ($700 total paid in interest over the year, of that I got about $400 "credit" - not sure that is the right word, perhaps its a deduction)
-both make pre-tax contributions to 401(k)'s and FSA's
-two deductions (one for each of us)

I am worried that if we owe this much this year, we'll owe even more next year, so I want to be sure that we have something closer to the right amount taken out next year!! I think the only thing that changed from last year is income; we earned more this year than last year, partially due to me only working the last 9 months of last year and partly due to a raise.

I really am clueless about this, we just use TaxCut and put in all of the numbers. Thanks for any help!!

[fek&fuzz]

You'd be well served to pay $300-400 to an accountant to have them go over everything and make sure you are electing everything properly, withholding enough (including in the bonuses), and taking full advantage of all the deductions and pre-tax contributions. They might even find something you missed this year and you can file an amended return.

[attachedmamaof3]

change your exemptions to zero.

It will decrease the take-home amount in your checks, but will usually result in a refund--all else staying the same.

[fek&fuzz]

Originally Posted by attachedmamaof3

change your exemptions to zero.

It will decrease the take-home amount in your checks, but will usually result in a refund--all else staying the same.

But even that is lending money to the govt. interest free.

[polyhymnia]

Originally Posted by fek&fuzz

But even that is lending money to the govt. interest free.

Yep, we don't necessarily want to do that. We don't necessarily MIND owing money, but I believe the penalty-free amount is $1000 and $750 is a little too close to that for my comfort level :-/

Fek&fuzz, how do we choose an accountant? Nobody we know uses them. Am I right thinking we should avoid places like H&R Block? I don't know that I'll be able to convince DP to go to an accountant, he thinks he ought to be able to figure all of this out, but at the same time he HATES paying the gov't so I might be able to convince him if it will be better for us in the long run

I can't come up with any deductions or things we've missed out on, but perhaps another pair of (trained!) eyes will catch something we've missed.

[fek&fuzz]

Originally Posted by crayolaab

Yep, we don't necessarily want to do that. We don't necessarily MIND owing money, but I believe the penalty-free amount is $1000 and $750 is a little too close to that for my comfort level :-/

Fek&fuzz, how do we choose an accountant? Nobody we know uses them. Am I right thinking we should avoid places like H&R Block? I don't know that I'll be able to convince DP to go to an accountant, he thinks he ought to be able to figure all of this out, but at the same time he HATES paying the gov't so I might be able to convince him if it will be better for us in the long run

I can't come up with any deductions or things we've missed out on, but perhaps another pair of (trained!) eyes will catch something we've missed.

Ask people you know (but don't call anyone until after the 15th, they are all crazy right now), ask your insurance guy/gal, look online for someone in your area, look up the Chamber of commerce or other business associations.

[polyhymnia]

Originally Posted by fek&fuzz

Ask people you know (but don't call anyone until after the 15th, they are all crazy right now), ask your insurance guy/gal, look online for someone in your area, look up the Chamber of commerce or other business associations.

Great ideas, thank you!! I am new to all of this "being a grownup" stuff so I am never quite sure what to do. I don't know anyone here really, but I can ask the insurance agent and look for a local chamber of commerce or business association.

in the meantime - is anyone aware of a list anywhere of "common deductions" or "common mistakes" people make on taxes?

[Sharlla]

Originally Posted by fek&fuzz

But even that is lending money to the govt. interest free.

Why do people have a problem with that? Don't we all benefit from tax $'s?

[polyhymnia]

Originally Posted by Sharlla

Why do people have a problem with that? Don't we all benefit from tax $'s?

I personally prefer to pay as close to what I owe as possible through payroll deductions. I have never had more than $200 refund and I would prefer to owe less than $200 as well. It's in my best interest - and of course I will look out for myself before I look out for the gov't. But, if I retain that money every 2 weeks/month rather than paying it in to taxes (unnecessarily) that is just that much more money I can a) put toward debt b) put toward investments c) put toward savings d) put toward anything other than a free loan to the government.

The government does not pay interest on money they have "borrowed" from me during the year (refund money), but you can be darn sure they expect me to pay interest to them on money I have "borrowed" from them during the year (any money owed over the penalty free amount). I hate double standards

And now I think we will definitely be seeking out an accountant, because I just learned that DP may need to file non-resident NY taxes as well since he works out of his NY office occasionally. It just keeps getting messier and messier

[kanga1622]

It sounds like the reason you owe this year is that your income increase bumped you into a higher tax bracket and you may not have had enough taken out from your quarterly bonuses.

We owe every year, we just try to make it closest to $0 as possible. To help with next year, redo your tax forms but pretend you are at year end 2008. Estimate your income (including bonuses if you can get a good guess) and project how much you will owe in total taxes next year. Then divide that by however many paychecks you get and compare that to what's being withheld currently. There's a withholding calculator on the IRS webpage at http://www.irs.gov/individuals/artic...=96196,00.html.

You may want to adjust your paychecks (just one of you) to withhold extra every month. We found that taking an extra $50 out of my paycheck every month wasn't that big a hit to our budget and made it much easier to handle in April when we only owed $300 instead of $900.

[polyhymnia]

Originally Posted by kanga1622

It sounds like the reason you owe this year is that your income increase bumped you into a higher tax bracket and you may not have had enough taken out from your quarterly bonuses.

We owe every year, we just try to make it closest to $0 as possible. To help with next year, redo your tax forms but pretend you are at year end 2008. Estimate your income (including bonuses if you can get a good guess) and project how much you will owe in total taxes next year. Then divide that by however many paychecks you get and compare that to what's being withheld currently. There's a withholding calculator on the IRS webpage at http://www.irs.gov/individuals/artic...=96196,00.html.

You may want to adjust your paychecks (just one of you) to withhold extra every month. We found that taking an extra $50 out of my paycheck every month wasn't that big a hit to our budget and made it much easier to handle in April when we only owed $300 instead of $900.

Thanks, I think that we will do this. I am pretty sure TaxCut had a 2008 Estimating tool, so we'll give it a try. It doesn't LOOK like we got bumped up a tax bracket (the bracket I think we fall in is 63,700 - 128,500, with and without bonuses and before and after raises which were effective in April) but I'm not positive, hopefully an accountant can help us sort this all out.

I was thinking about adjusting my withholdings (I earn less so the amt kept would be less) rather than him doing it but again hopefully an accountant will know best.

I wish we still lived in the UK, taxes were so much easier there :P

[SusannahM]

The amount to avoid a penalty is a percentage of your tax owed. I think it's 10% but I don't remember for sure. I'd take a look at how much your tax obligation is. It's probably about $25k or so with your income, so 10% of that is $2,500. Your far from being penalized. I wouldn't worry too much about it, personally. I definitely wouldn't start declaring 0 dependents. If anything, just have them start taking an additional set amount out of each check, you can do this on your W4, maybe about $30, since that would be about $700 additional taken out over a year period (assuming getting paid every other week, you'd have to adjust since it's not the beginning of the year anymore).

Also, you can always get your employer to deduct extra for one check if you think you're going to be close to the penalization limit at the end of next year.

[polyhymnia]

Originally Posted by SusannahM

The amount to avoid a penalty is a percentage of your tax owed. I think it's 10% but I don't remember for sure. I'd take a look at how much your tax obligation is. It's probably about $25k or so with your income, so 10% of that is $2,500. Your far from being penalized. I wouldn't worry too much about it, personally. I definitely wouldn't start declaring 0 dependents. If anything, just have them start taking an additional set amount out of each check, you can do this on your W4, maybe about $30, since that would be about $700 additional taken out over a year period (assuming getting paid every other week, you'd have to adjust since it's not the beginning of the year anymore).

Also, you can always get your employer to deduct extra for one check if you think you're going to be close to the penalization limit at the end of next year.

Thanks!! I didn't realize you could do this (either have a set amount taken out, or do a one-off). Or about the penalty point. On my tax form I think the important number is Total Tax = 18,022. So I guess our penalty free level is 1802 which is much higher than I thought (I thought 1000). So, I won't freak out so much about going over our allowed penalty free amount but I do still think people above have had good suggestions and I'm going to try to talk DP into seeing an accountant to be sure we are doing everything the best that we can.

I did just find a line on the tax form like 42 that says
"If line 38 is 117,300 or less, multiply $3400 by the total number of exemptions claimed on line 6d. If line 38 is over 117,300, see the worksheet in the instructions". Line 38 is 118,218 and line 6d is 2 exemptions - but TaxCut filled it in to be 6800... so I'm going to look up "the worksheet in the instructions" whereever that is to see if that was the right thing for TaxCut to do.

[lmonter]

Just random thoughts - bonuses are taxed higher than regular income (irks me every year with hubby's year-end bonus - as if he didn't work just as hard for it), and the amount of the bonus may have also thrown you into a higher tax bracket. :

That's always one of my fears - that hubby's bosses generosity could come back and bite us where the sun don't shine...

But I'm not an accountant, and our taxes are simple enough to just use the deluxe version of Turbotax (the middle version - not the bare bones, not the premium) because we have a few investments and such.

[polyhymnia]

Originally Posted by lmonter

Just random thoughts - bonuses are taxed higher than regular income (irks me every year with hubby's year-end bonus - as if he didn't work just as hard for it), and the amount of the bonus may have also thrown you into a higher tax bracket. :

That's always one of my fears - that hubby's bosses generosity could come back and bite us where the sun don't shine...

But I'm not an accountant, and our taxes are simple enough to just use the deluxe version of Turbotax (the middle version - not the bare bones, not the premium) because we have a few investments and such.

I've got DP investigating the rate at which his bonuses are being taxed. Maybe that'll shed some light on the situation

We don't have anything fancy either which is why it really floored me that we owe so much. I thought the PAYE system worked reasonably well here. Turns out making so much means it doesn't, and most people making what we do own a house/have other deductions so they itemize rather than taking the standard deduction - not that I am ccomplaining, we are very grateful for what we have - but it is just frustrating the PAYE system has failed. Ah well.

[mnnice]

Honestly, as your income and the complexity of your taxes increase the odds of being underwithheld increase. I also think $750 it a pretty close estimate. I think your deductions are fine and would leave it alone. If you and your partner are paid every two weeks it's only about $12 per pay period.

[polyhymnia]

Originally Posted by mnnice

Honestly, as your income and the complexity of your taxes increase the odds of being underwithheld increase. I also think $750 it a pretty close estimate. I think your deductions are fine and would leave it alone. If you and your partner are paid every two weeks it's only about $12 per pay period.

Thanks, I just didn't realize that happened with increased income - since ours are still really simple, I didn't expect to be dealing with this. Oh well. I get paid biweekly, he gets paid monthly.

Thanks everyone for the help!!