Bouv, I am an employer and help employees with coming up what fed and state tax deductions would work best for them and have them readjust their W-4s accordingly. There are many ways to skin a cat here:
First, pull up this PDF file: 2006 Employer’s Circular E (pub-15) from the IRS
Go to page 37 and look under the “ANNUAL Payroll Period” if you know what your annual salary is or you could backtrack to other payroll periods on page 36. Pick a table that works easiest for you to calculate your annual federal tax. Once you have figured out your annual tax, divide it over the number of paydays you have all year. Make sure you account for the taxes already paid over the first few checks that you have received this year (Go by pay dates, not pay periods).
Once you know how much you owe per paycheck, go turn in another W-4 and claim your filing status, but ASK the employer to deduct the constant amount (they should be able to do this) that you calculated per check by writing “$x CONSTANT” on line #6. Even though it does say “Additional amount, if any, to be withheld from you paycheck”, some people who do payroll are savvy enough to make it a constant deduction…if the company is large enough and has a veteran payroll clerk, they should have no problem doing it. If you wish, you can round it up to the nearest dollar, 5 dollars or 10 dollars to ensure a refund. I am assuming that you are single, with nobody else as a dependent; otherwise there are other calcs to make. Sometimes talking to the clerk in the payroll dept. can be helpful.
I hear you - I was really counting on abo $500 or so (like the last three years) for some much-needed car repairs, and instead we owe $300. Literally nothing has changed in the past year except that we made less money and are in a lower tax bracket now, but we inexplicably owe.
It’s not inexplicable. It’s not even all that complicated.
There are two ways to have deductions taken out of your pay check.
Choose a marital status and a number of deductions (S3, M2, whatever). The amount taken out will be caculated by some forumla based on the amount of money made in that particular pay period. This is relatively accurate if you don’t itemize your deductions. It sounds like the error was more in your favor one year over the next.
Choose an exact amount that you would like taken out of your pay check. With this method, you will have to calculate what you will owe for the year and then divide by the number of pay periods.
You travelled around to gigs, claimed all the income, and documented none of the expenses?
That ain’t money’s fault, dude. I’d address whatever “circumstances” led to you not documenting deductions. . .like buying a pencil and a piece of paper.
With your early 401(k) withdrawal, you might have paid the penalty, but not the tax?
OK, first thing, you did have the extra money, a little each month. You chose to spend it instead of save it. Get some savings discipline. Hopefully, lesson 1 learned right there.
Second, just saying “take the normal deduction” doesn’t automatically mean you’ll get money back. Tax witholding isn’t supposed to be a savings account or yearly bonus. But if you have no savings discipline and want the IRS to exercise discpline for you in the form of a refund, go back and tell your employer you want to fill out your W-4 again with 0 allowances. Again, it is not their job to figure your tax burden for you (and also not my job to know whether 0 allowances will shrink your paycheck so that you can’t pay your rent). They don’t know anything that could affect your deductions… whether you have a working spouse, whether you’re paying a mortgage, whether you got an inheritance, any of a dozen tax-affecting things that a company has no business knowing.
The only person responsible for managing your tax situation is you. You can pay an accountant to do it for you if you’re really phobic, but for finances as (apparently) simple as yours, just read the IRS pubs and educate yourself.
Income tax is a boring subject. However, when you consider how much you pay, and maybe how much you could legally avoid paying, educating yourself on tax matters can be like giving yourself a huge raise. Look into it.
Oh, and since this is the pit, fuck the motherfucking IRS and federal government, in particularly whichever sessions of Congress approved the giant vacuum-cleaner to suck 33% of my salary out of my pocket. Nobody should have to work January through April for the government or have to work so hard figuring up how to keep a little of that money.
I tend to agree with the January through April part, but “work so hard figuring”? Come on. There are a couple of really good tax programs out there (and the cost of them is itself deductible). I use TurboTax and have never had a problem. My taxes usually take at most 1 hour to prepare and file. And no, I don’t file EZ, 1040 long form and a couple of extra things every year. This year took a little longer, but mostly because I didn’t believe Turbo when it told me I didn’t have to declare the profit on a second home sale. Took a while to track down that it was right.
Perhaps I wasn’t clear. I didn’t document most of my expenses. Therefore I will not be claiming any, and will owe more on my taxes than I usually do. This is my fault. Money’s a bitch because I have to worry about it in general, and because I’m empathising with bouv, not because I blame money for me having to pay taxes.
And yes, thank you, I have addressed the ‘circumstances,’ and have regained control of my life after a year of horrible tailspin. This is just one of the consequences of last year that I am taking in stride. Thank you for your snarkiness, it was much appreciated.
With the 401(k), when I took the distribution, the penalty is taken right off the top. Then the investment company by law had to pay a certain amount of state and federal taxes out of my distribution, so I recieved a check for an amount that was already minus the penalty and then minus the minimum required taxes removed.
However, I have to pay more in State taxes (not federal) than the minimum they had to remove, so I have to make up that difference (if that all makes sense).
I’m going to owe about $2000.00 this year, because I forgot to change my withholding rate from married to single until late last year. My wife died in January 2004, so when I filed my 2004 taxes I was still eligible to file as married. I remember thinking when I was filing my return last year that I should probably change my withholding, but it completely slipped my mind until sometime in October. I’m hoping that I won’t be subject to any penalty since my withholding is more than I paid in taxes last year (as Mama Zappa pointed out) even though my filing status has changed.
Well, good for you. I was able to say the same thing for a while, but after accumulating some investments in multiple tax-deferred IRA’s, selling and renting some property, working overseas for a year, having investment gains and losses, my taxes have really crept up in complexity.
I agree that for many people, an hour per year with TurboTax should cover it, but that isn’t true for many people.
Even with all those complexities, I’m still doing mine on TurboTax… probably have a couple more years before it gets too much for me to handle without professional help. Which is why I feel like I can say with authority to the OP… you and only you are responsible for understanding your tax situation. Even if you do have an accountant prepare your taxes, if the return contains errors, the accountant doesn’t get the penalty, you do. Your taxes are your own responsibility, that’s my main point.
I’ve been doing taxes for 20 years and have seen situations like this (and similar) many, many times. The philosophy I’ve developed, and what I tell my clients is, “If you honestly incurred the expense, but don’t have a receipt, claim it anyway. Especially if you’ve incurred like expenses in years past. Don’t be dishonest about your expenses, but honestly claim what you spent. Chances are you won’t get audited. We’ll only worry about it if you do get audited.”
My experience has been that big changes in expenses (either up or down) without corresponding changes in income tend to get the IRS’s attention quicker than being consistent from year to year.
Some expenses are easier to document than others. I would imagine your biggest expense is mileage. As long as you have a list of gigs and Yahoo Maps, you can reconstruct that expense and claim it. Granted it’s not as good as having a log that shows beginning and ending mileage, but it shows a good faith effort on your part to keeping a written record. Other expenses may be a little harder, but if you’ve got a box full of broken drum sticks and heads, you’ve got some decent evidence. Or if you claim a new set of strings every gig, that’s reasonable, especially since you have to practice and strings do tend to stretch and break with use. CD’s you buy looking for new songs to add to your set list can be evidenced by your possession of them. I’d claim a Wal-Mark price instead of a Hastings price on them, but I’d take some type of deduction. And I’d think that any music store where you made a large purchase, such as new equipment, would be happy to provide you with a copy of the original receipt. Especially if it’s a store with which you frequently do business. Other expenses like meals and lodging can be documented by you simply being at the gig and claiming the per diem rates published by the IRS in Publication 1542. You should also check out the What If I Have Incomplete Records? section of IRS Publication 463, page 25.
At the very least, sit down now and make a detailed list of the expenses you incurred, whether you claim them or not. It will be a hell of a lot easier to do it now rather than two years from now.
But again, and I can’t emphasize this enough, be honest in what you claim. Don’t screw yourself, but don’t try and screw Uncle Sam either.
For any of you concerned about your withholding, check out IRS Publication 213 - Check Your Withholding.
My HECS debt would have come into the equation once the 35k threshold was reached. The debt is calculated against the entire taxable income, not just monies earned over the 35k.
Two questions, pretty sure they haven’t been discussed yet, depending on answers could turn into Pit material -
hip replacement in July, received state disability until October - is it considered taxable income? They haven’t sent me any forms or W2 yet, I thought that kind of stuff would be sent by the end of January
gambling winnings - OK, yes, a person on state disability shouldn’t be gambling, blah de blah. Over the year, I did win some taxable jackpots in the Indian Casinos, and I saved all my ATM slips when I got money at the casino, so I’m hoping for a push there. Am I right about that one?
Taxes suck. Now I’m in too bad a mood to watch the Oscars. Wait, mmmmmmm, nachos…
Gambling losses can be written off against gambling winnings. If legitimate, they can completely offset the winnings but they cannot exceed the winnings.