We had some bad financial news recently. It's taken me a little while to calm my nerves and write about it.
Hubby and I have been house hunting recently, with a plan to hopefully have enough saved for a down payment by the end of the year. It suddenly hit my husband that we should look into our taxes and what we could save by having an interest tax write off once we get a house.
In the process of doing this, he discovered that we have not been paying enough for taxes. WTF? For real? We were so good this year and claimed "married-zero" for both federal and state, so we thought we'd be getting something back next year, not having to pay!
Well, (hold on a sec, while I take a moment to calm myself...) we discovered that we're likely about $4,200 short on our federal taxes and at least $2,000 short on our state. AGHGHGHGHHGHGHGHGHGHHGH! We were both SO FRIGGIN' FRUSTRATED. How can you owe if claiming ZERO?
Our research showed us that by claiming "married" the government assumes that only one spouse is working, not two AND that you have multiple deductions - read: a house and kids. Yeah, that's not our situation.
So, I bit the bullet this week and had my taxes adjusted to have a bit over $1,000 extra put towards our taxes each pay period for the remainder of this year, so that HOPEFULLY, we'll end up breaking even.
By doing this, we've reduced the amount we'll have saved for our future home. Because of this, we've put off home ownership until next year sometime.Oh well. I'm a believer that everything happens for a reason and although we are disappointed about having to wait longer, it just wasn't meant to be right now and someday we'll understand why.
So, my advice for those of you who are claiming married-zero without any other deductions like us, you may want to look into what you've had withheld so far this year so you don't have to pay big time next year.
Bummer :( But like you said, it probably happened for a reason. Ive learned quite a few things doing my own taxes. Like if you make over $120k and contribute to a Roth IRA you get penalized. Also, while our last house with the big payments and big taxes gave us enough to itemize, our new house with small payments and low taxes probably won't give us to itemize and the standard deduction will probably be more. Taxes...so confusing.
ReplyDeleteI agree, it is confusing! So many loopholes to watch out for.
DeleteAwww that stinks! Next year isn't too far away though.
ReplyDeleteExactly! 6 more pay periods and we'll be getting back to normal.
DeleteIs a portion of your income a bonus? Bonus structures are taxed different - almost at 40%, but companies typically only take out the standard rate, which means - you will owe.
ReplyDeleteWe don't pay state tax, so I don't know about that.
What we do to combat the owing - which one year was over $7,000 for us - is taking advantage of every tax incentive possible - flexible spending, disability insurance, 401(k) to lower our income, etc.
It has helped tremendously. We do not have to claim 0 either.
I am very sorry you were saddled with this realization right now. Such a blow.
Hi Jennifer,
DeleteNo, it's all base pay for us. Good idea about taking advantage of the tax incentives when possible. We're thinking of maybe opening an IRA before the end of the year so that may help a little too. Thanks!
wow that's scary! But at least you caught it before the end of the year and not when the bill would be due!
ReplyDeleteThank goodness for that! My husband would have probably had a heart attack if we found out next year.
DeleteYeah, taxes are tricky. Last year, I was expecting a large refund, but I ended up owing the government money. It's good that you and your husband caught this sooner than later.
ReplyDeleteUgh, that's frustrating thinking you will be getting money back and end up owing. Hopefully this year will be better for you.
DeleteOuch. I think I'd have a good rant and then several good cries over that. Still, a very good thing you found out earlier rather than when you filed - THAT would be a complete disaster.
ReplyDeleteI bet you get the house of your dreams when you finally do buy.
Exactly! I am thankful we discovered it now while we still had a chance to fix it. Thanks for your positive words about our future home :)
DeleteHow did you figure out what you would owe? Like, did you ask your accountant? Thanks.
ReplyDeleteWe put our payroll numbers into the IRS withholding calculator at http://www.irs.gov/Individuals/IRS-Withholding-Calculator.
ReplyDeletehmmm i do taxes for a living....and i am wondering if you input your information correctly. if you have no other income except for W-2 wages and you are claiming zero exemptions it would be rare that you end up owing millions...unless your salary is close to the half million range combined. putting money in an IRA is probably a better idea than paying extra to the government. Might also be a good time to make some big charitable contributions.
ReplyDeleteOh no! Sorry to hear that! But at least you found out sooner rather than later and you've got a plan to pay off what's owed?
ReplyDelete