April 8, 2008
Surprise! As I was just telling my fellow state tax refund recipient, Ms. M&P, I got a bee in my bonnet and checked my bank account to find that, I, too received my whoppin’-huge state tax refund today!
I had JUST scheduled a transfer of funds from my Citi tax savings account to the Wamu payment checking account, for the federal tax bill withdrawal in two days, so I’m sad I didn’t check earlier today so as to adjust the transferred amount accordingly. Still, I sure don’t mind getting, so I’m not going to complain about making an extra transfer request.
April 4, 2008
This isn’t the first time I’ve pondered this and I’m sure it’s getting old. I’m mulling over the various adjustments I’d like to implement for Tax Year 2008. I know what my annual goal was fairly sensible, but in light of some mistakes made in Tax Year 2007, I need to make some post-Q1 adjustments.
Mistake Number 1: Underestimating the amount of “contractor” income I was going to make.
This led to Mistake Number 2: Adjusting my withholdings drastically to make up for what I thought had been excessive withholding, given my Head of Household status. For the last few months of the year, I was paying very little federal tax.
Had I not received so much untaxed income in Q4, too late to correct the withholding and increase my retirement contributions correspondingly, my estimate of my taxable income and corresponding tax bill would have been just about perfect.
Instead, the effects of the two mistakes above were:
1. I ended up owing the entire amount of taxes assessed on the untaxed income, and
2. My percentage of retirement contributions of total income was significantly lower than it should have been.
3. I think I’m being assessed a $32 federal penalty for not making quarterly payments on that income because I withheld too little. 🙁
Rather than making quarterly payments this year, I’m considering the following:
1. Increase my retirement contributions for the rest of the year to include the equivalent of 30% of the untaxed income.
2. Save 10% of the untaxed income for taxes, instead of the usual 30%.
3. Keep my withholding at 1 and add a small, additional amount per month so that I don’t have to waste time, money and brain capacity on sending in quarterly payments.
I like this plan because I really like watching the balances in my Vanguard account go up (despite the market volatility, it creeps up now and again). I really like the idea of committing to a bit more in the retirement accounts. I like reducing that feeling of false security when I’m holding a lot of cash in anticipation of a tax bill.
Cons of the plan: reducing my take-home pay even more will make budgeting even more difficult. I’ll have to be ultra-careful about juggling expenses because I’m no longer holding out until that next fat supplement check, what I gots is what I gots!
Any cons that I’m missing here?
April 1, 2008
Little of Column A, little of Column B.
Once again, any lingering regrets that I didn’t handle the tax return myself have been dispelled. PaDucky has the forms so I haven’t inspected his work with a finetooth comb yet, but it sounds to me like he’s more than earned his keep. The man has not only magicked the forms to produce a federal tax bill of $1290, approximately one third the total of my own margin-scribbles math, but he offset that with a state refund of $998. Throw in the tax rebate to hit my checking account on May 9th, and you have one happy happy ‘ducky.
Until the taxes have been paid, and the money I’m expecting is in my virtual, grubby hands, I probably won’t believe it. I know that’s weird, there’s no reason to doubt, but I also didn’t have a possible “windfall” to look forward to in the form of my dedicated savings account for taxes. Assuming those numbers are right, I’ll not only have an extra $300 after everything’s shaken out, I’ll have my ENTIRE tax savings account left over. I’ve not only been putting away money to pay taxes in there, I’ve been salting away any little money I’ve gotten, interest money from loans and the like, to keep safer than safe since I knew I wouldn’t touch that account for anything until April 15th.
Now I’ve got a little gremlin in my mind saying, pssst! That’s all windfall, ‘ducky! What’re you gonna DO with it?? I’m pret-ty excited…. so I’ll definitely take a few days to decide how this will be divvied up. E-fund? Mini e-fund? Car fund?
**I was putting this post together before the car thing. Talk about counting your ducklings ….**
February 12, 2008
In my haze of coughing instead of sleeping at night, and working instead of resting during the day, I realized I have never had to pay taxes before. It’s always been a refund, large or small, and so I’ve never had to consider this question:
How should I pay my taxes?
As I mentioned before, I think it’s going to be a hefty sum. As a matter of principle, I hate to pay by check. Should I look into using a credit card and do they always charge a convenience fee? If they do, the only way it might be worth it would be to have a high percent of rewards (at least 5%) to offset the fee. Whatever the case, I’d like to make sure that I maximize this “purchase!”
In other news, this is one of the nastiest colds I’ve ever had. It’s been a week, and I think I’m getting worse. At least it’s not the flu!
February 9, 2008
As it turns out, I didn’t properly track my non-W2 income in the form of bonuses and supplemental income as well as I thought I had.
All the paperwork is here in front of me, and I may very well be getting soaked on my taxes this year. Let’s see, nearly 30% of my total income was paid as “miscellaneous income” documented on a 1099. Since I didn’t anticipate this, I’ve only paid approximately 8% on total income this year, and only have my filing status as Head of Household with 1 dependent to help keep the tax bill lower. Yikes!
I’m not eager to find out what the real bill will be, but not knowing is making me a bit itchy. Guess this means I’d better get this paperwork to the accountant and let him work his magic soon.
April 10, 2007
Hmph. It turns out that, despite my intense denial, the accountant is right and I can’t claim HOH status with both Pa and MaDucky as my dependents. Force of willpower can’t make him wrong, after all.
MaDucky made more than the 3,300/year income limit, and so, despite the fact that I’m pretty much paying for the entire household, I cannot claim an exemption for her. This means I could end up owing money after all. I’d artificially inflated my exemptions for the last quarter of 2006 to compensate for what I thought was overwithholding all year, but forgot to factor in my bonus and the possibility that I might not have 3 exemptions this time ’round.
Drat.
What does this mean? Well, I’ve already reduced my exemptions for this year. But, I have to try to sock away more into my retirement accounts to lower my taxable income some more in case my bonus is the same as last year’s or better.
Phooey phooey and drat. I hate it when well-laid plans go awry. It’s a good thing I never counted on a refund, though.