MM Vent-Tax Bill

Xstatic3333 · April 2015

No real advice to ask for here, just a vent. We just heard from our tax guy that we owe the feds $2000. We'll be getting about $800 back from the states. I'm really frustrated-I claim 0 and H claims 1, I was able to deduct my whole dive job income, and we bought a house this year. H is going to switch to 0. Our tax guy is blaming it all on my church daycare job that I did up through the summer, but since I only made $2,000 the whole time there it's hard to imagine that as the culprit. H is acting like this is no big deal but it is a huge hit for us. At least we do technically have the cash on hand.

Anyone else run into this? Should I swap my Roth IRA for a traditional? I'm so irritated.

Xstatic3333 · April 2015

Also, I paid quarterlies to one of our states but our accountant made no suggestion that we should have been paying federal quarterlies.

hoffse · April 2015

I'm confused. What should you have been paying quarterly? Just the taxes from your daycare job or something else?

Don't swap the Roth - I really don't think that saving yourselves the tax bill is worth it given your ages.

Xstatic3333 · April 2015

hoffse said:
I'm confused. What should you have been paying quarterly? Just the taxes from your daycare job or something else?

Don't swap the Roth - I really don't think that saving yourselves the tax bill is worth it given your ages.

I'm confused too. However, knowing that I'd need to put out $2,000 I would rather have known and paid $250 in increments. I'm not sure if I should have asked about that or if the accountant should have warned me. He had us pay quarterlies to MA last year since the state requires it if you owe more than around $500.

Good (non-official tax advice) feedback on the Roth

hoffse · April 2015

So if it were me I would call him and ask him to lay it out for you again. If it still doesn't make sense, I would be inclined to back-check him manually.

Make sure he took deductions for your home interest, property taxes (if applicable), state income taxes, any local taxes you paid, your car tag/taxes, etc. (assuming your itemized deductions are more than the standard deduction. They probably are). Also check on charitable donation deductions (did you make in-kind donations of books, clothes, etc.? They are more valuable than you think) and education loan interest. Those are just off the top of my head as some of the more common ones.

What is confusing me is that the things that changed this past year that we on MM know about (house) should have made your taxes go down. Did anything else change last year that would have accounted for the increase? Did one of you guys get a big raise or bonus that might have popped you into a higher tax bracket?

I have worked with some accountants who are really amazing at their job (thankfully, this is the vast majority). I have worked with one or two who were so bad that they made mistakes bordering on malpractice. I'm sure most accountants would say the same thing about lawyers. Odds are, this guy calculated everything correctly, but he should be able to explain to you why this happened, and he should be able to tell you what to do to avoid it in the future. If he can't do that, it would be a huge red flag for me.

Xstatic3333 · April 2015

We attempted to do Turbo Tax, which I think would be our only method of back-checking him, and unfortunately the whole thing got so complicated with having two states involved that we had to give up. Neither of us had big raises this year, just standard COL-type stuff, but we make about the same so I'm wondering if we are a "marriage penalty" situation. H does our taxes and was the one to talk with him, but I'm thinking of calling him myself so I understand better.

When we did Turbo Tax, they were having us do the standard deduction even with the house and mortgage interest. Our house is probably less expensive than many on this board, but we do still have a large chunk of our payment going to interest early in our 30 year loan. Maybe next year with a full year of ownership we'll be high enough to itemize. We did account for our charitable donations, including the donated washing machine, but Turbo Tax only gave us $30 for that.

I do trust the guy. He's done my parents' taxes my whole life. I think calling him myself so I can better understand what happened would make me feel better.

Another factor could be that H's pension contributions seemed to be coded in some weird, unusual way ("Code Z") that had us paying taxes on them. Turbo Tax admitted to not being properly equipped to deal with "Code Z," and I assumed that once we were in front of a real accountant there was no way his pension was taxable, but maybe it is. Who knows.

I just budgeted through June in a flurry of MM frustration and we should be able to start putting lots of money away to repad our e-fund by May. Just a temporary setback.

Thanks for the feedback and suggestions @hoffse!

MissChanandlerBong · April 2015

I gues I would first want to confirm whether he had you take the standard deduction or itemize. You said TurboTax had you taking the standard deduction but also a small contribution deduction - you can only deduct contributions if you itemize.

I totally agree that states can get complicated, and TurboTax doesn't let you preview state returns before filing which annoys me to no end, but you should be able to get a good idea of your Federal return on TurboTax without the states. Again, if you took the standard deduction, the state taxes you paid would have no impact (you can only deduct state taxes if you itemize). You can preview the Federal return before filing/paying on TurboTax, so you can do a quick review to compare it to the one your accountant prepared to see any big variances.

I am not a pension person, but I have never heard of pension contributions being taxable income to the employee.. that makes no sense, but I could be wrong. If you think that is the issue, definitely ask your accountant to explain that to you.

Also you said you can deduct your dive job income - do you mean that you were able to treat this as a business and deduct your associated expenses to offset your income?

Finally, if your income was relatively consistent year-over-year, was the amount of tax withheld also consistent as a percentage of income? If not, perhaps there is an error in the payroll system despite what you are claiming as exemptions.

Wulfgar · April 2015

If the two of you are claiming single 1 and 0 you should not owe any Federal Taxes. Where you can get into trouble is if you are claiming married 1 and 0 and your combined income is high enough to put you into the next tax bracket than your individual incomes.

My Dad always had both him and my mom claim less than they were allowed at their jobs since my Dad did enough free lance work that he would still have to make quarterly payments to the Feds, the State, and the local for taxes.

That is why when I did change my withholding last year I went from single 0 to single 2 to increase my monthly take home a little but not too much to change how much we get when we do our taxes.

Finally, MW and I have only been able to do itemized once or twice since we bought our house. Our current mortgage is $60k over 15 years at roughly 4%. We would have to come up with a lot more items to deduct than mortgage, taxes, and increase our charitable contributions to make itemizing work. This isn't realistic for us. Reading the articles in USA Today's money section, only about 20% of home owners can actually itemize versus taking the standard deduction.

vlagrl29 · April 2015

I'm confused why you owe that much as well. The little bit you made at the church daycare job should NOT make you owe 2k on it. Seriously. If that was the case you should do a schedule C on it and deduct things like mileage.

I would have your CPA walk you thru the return he did so you understand what's going on and can prepare better for next year. I talked to our CPA just last weekend and he showed me things that made it more clear in my mind. We will be paying quarterly this year so we won't have to owe next year, but we are both self employed.

Xstatic3333 · April 2015

@MissChanandlerBong it's helpful to know that state taxes aren't deductible with the standard deduction. That probably counts against us big time. For the dive job, yes, I get a 1099 so I can deduct all expenses. The job is more of a "subsidized hobby" and this year expenses pretty much equalled incone.

@Wulfgar I'm pretty sure H is filing Married 1. He was really excited to go change his withholdings after we got married. I kept mine at 0 because pre-MM I used to love a big refund. Now I'd just love to break even! Nice to hear of another married couple that can't itemize. I was thinking we were unusual.

For reference, each of our separate taxable incomes was only around $42,000, so we're not super high earners (not that I'm complaining-we're blessed to have our jobs!) I'm going to give our accountant a call this morning.

jessica490 · April 2015

Yup, we ran into the same problem this year. I think both H and I claim zero, but I had gotten a second job in Sept in which I didn't realize hardly any taxes were coming out and we ended up owing $800 to the Feds. My fault for not looking at the paychecks but I was kinda mad. I only made about $2-3K or so in those 4 months so I just recently changed my deductions to Single claiming 0 on both state and federal on the second job...and looks like I need to have additional dollars coming out as well because its not a lot at all. Once we sell this condo I'm quitting anyway so hopefully it won't kill us next year.

Xstatic3333 · April 2015

jessica490 said:
Yup, we ran into the same problem this year. I think both H and I claim zero, but I had gotten a second job in Sept in which I didn't realize hardly any taxes were coming out and we ended up owing $800 to the Feds. My fault for not looking at the paychecks but I was kinda mad. I only made about $2-3K or so in those 4 months so I just recently changed my deductions to Single claiming 0 on both state and federal on the second job...and looks like I need to have additional dollars coming out as well because its not a lot at all. Once we sell this condo I'm quitting anyway so hopefully it won't kill us next year.

It's such a bummer when second jobs end up basically a wash

Dumb question-is single 0 different from married 0? Is married 0 even a thing? I'm wondering if I could up my withholdings as well.

Erikan73 · April 2015

Check your day care stub to make sure they took out for taxes. I worked for a company for six months & they didn't take out Federal Taxes, just state and local. I didn't notice it, which is my fault. Not sure if that was legal or not for them to do that or if it was a mistake, but it messed us up on our taxes.

This year I got a refund and my husband ended up owing. Luckily we did our taxes back in January so we knew how bad the damage was and put aside my federal return and both our state returns. Due to how our state tax laws are, we are better filing married, seperate.

For us, since we have no dependents, our house, taxes, etc, don't help us out, we're better off with the standard deduction. We have made some changes to our 401K to more money goes into that which will hopefully help us next year with our taxes. It's hard to do a work up to estimate because our bonuses vary from year to year and those can change everything.

I did have hubby change his withholding from Married/1 to Married/0. I have mine at Single/O. I'm hoping that next year we get money back or at least break even. This year we had to come up with about $300 in addition to the money we got from my Federal and each of our State Refunds. .

jessica490 · April 2015

Xstatic3333 said:

jessica490 said:
Yup, we ran into the same problem this year. I think both H and I claim zero, but I had gotten a second job in Sept in which I didn't realize hardly any taxes were coming out and we ended up owing $800 to the Feds. My fault for not looking at the paychecks but I was kinda mad. I only made about $2-3K or so in those 4 months so I just recently changed my deductions to Single claiming 0 on both state and federal on the second job...and looks like I need to have additional dollars coming out as well because its not a lot at all. Once we sell this condo I'm quitting anyway so hopefully it won't kill us next year.
It's such a bummer when second jobs end up basically a wash

Dumb question-is single 0 different from married 0? Is married 0 even a thing? I'm wondering if I could up my withholdings as well.

I know...I guess it's really not worth it but the extra paychecks are nice at the time, I guess we just need to check the deductions.

Yes, I think Married vs single O are different and legit. The HR lady told me that filing Single 0 even if you are married will take out the most....but it's weird because its only taking like $8 out of state and maybe $10 our of federal and this is on a $113 check...so I need to add on more dollars in addition to that.

Before I was even paying attention, they were taking nothing out of state and only $10 for federal.

Xstatic3333 · April 2015

The daycare job was only taking out a very small amount of taxes, as if it was my only job. I've asked about changing this before and they have said it is not possible. However, I've had the job for eight years and when I was single, I still got huge refunds. I guess I didn't realize marriage would change things so drastically, and figured out SL and mortgage interest would more than offset it.

jessica490 · April 2015

Xstatic3333 said:
The daycare job was only taking out a very small amount of taxes, as if it was my only job. I've asked about changing this before and they have said it is not possible. However, I've had the job for eight years and when I was single, I still got huge refunds. I guess I didn't realize marriage would change things so drastically, and figured out SL and mortgage interest would more than offset it.

Hm, yea that is weird....

Xstatic3333 · April 2015

jessica490 said:

Xstatic3333 said:
The daycare job was only taking out a very small amount of taxes, as if it was my only job. I've asked about changing this before and they have said it is not possible. However, I've had the job for eight years and when I was single, I still got huge refunds. I guess I didn't realize marriage would change things so drastically, and figured out SL and mortgage interest would more than offset it.
Hm, yea that is weird....

New info-H just texted from work that he was actually claiming 2! Face palm.

Put a call into our CPA to make sure this all gets cleared up for next year. Thanks to you all for your advice and commiseration. This just isn't the kind of thing it's ok to vent about to IRL friends and family.

formerlyGDaisy09 · April 2015

we ran into this when H was working two separate jobs, he was making like $20K at each job and wasn't accounting for the combined income (I just didn't even think about it since I'd always gotten a small return). that first year we were married and in the house and filing jointly we owed like $1200. (our combined pre-tax income at that point was like $70K...so not high earners). I would take a look over it again.

If you're making that much with the church (that's about what I make teaching dance) and you're getting paid with a 1099, a schedule C might be what you want to do, in which case you would want to account for any of your expenses that might be attributable to that. (for example I can write-off any music purchases I make for teaching, as well as dance-wear (shoes, leotards, tights)) I do make quarterly payments, but my expenses generally off-set a good portion of it. unfortunately most clothing can't be written off (the woman who does our taxes says a good rule of thumb is, that if you could run into the grocery store for a gallon of milk and not be viewed as a crazy person because of what you're wearing you can't write them off...fortunately for me most people would agree that running into the store in a leotard, tights and pointe shoes would get you some strange looks).

Xstatic3333 · April 2015

formerlyGDaisy09 said:
we ran into this when H was working two separate jobs, he was making like $20K at each job and wasn't accounting for the combined income (I just didn't even think about it since I'd always gotten a small return). that first year we were married and in the house and filing jointly we owed like $1200. (our combined pre-tax income at that point was like $70K...so not high earners). I would take a look over it again.

If you're making that much with the church (that's about what I make teaching dance) and you're getting paid with a 1099, a schedule C might be what you want to do, in which case you would want to account for any of your expenses that might be attributable to that. (for example I can write-off any music purchases I make for teaching, as well as dance-wear (shoes, leotards, tights)) I do make quarterly payments, but my expenses generally off-set a good portion of it. unfortunately most clothing can't be written off (the woman who does our taxes says a good rule of thumb is, that if you could run into the grocery store for a gallon of milk and not be viewed as a crazy person because of what you're wearing you can't write them off...fortunately for me most people would agree that running into the store in a leotard, tights and pointe shoes would get you some strange looks).

Ha! I like that rule. I think it also applies to my SCUBA gear

The daycare job was paying me as an actual employee so deductions were out. Fortunately/unfortunately I'm not doing that job anymore so it won't be an issue, and with my instructor course I'll likely take a loss this year on the dive teaching.

smerka · April 2015

When you file with a Schedule C, you have to pay SE tax, which is equal to both SS and Medicare tax for both the employee and employer or 15.2%.

jtmh2012 · April 2015

Xstatic3333 said:

The daycare job was only taking out a very small amount of taxes, as if it was my only job. I've asked about changing this before and they have said it is not possible. However, I've had the job for eight years and when I was single, I still got huge refunds. I guess I didn't realize marriage would change things so drastically, and figured out SL and mortgage interest would more than offset it.

Actually, you can have them withhold additional. On the Federal W-4 form Box 6 says "Additional amount, if any, you want withheld from each paycheck". What you can't do is get each job to withhold based off the combined income.

Wulfgar · April 2015

I have a co-worker that I work with ended up owing money this year for taxes. On my Facebook Dad's board another fellow was complaining that he had a $12k swing in taxes, I am leery on this one though.

It seems like there was some type of change to the tax code that made some people owe more or they might have bumped up into the next higher income bracket.

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