In 2000, I completed my first full year of gainful employment after several years of grad school. (I worked for three years between undergrad and grad.) Mrs. CG is in her third year of a fairly well-paid medical residency. Our combined income for 2000 puts us well above average; we actually broke six figures by a little. It’s completely uncharted territory for us, since we’re both from working-class backgrounds. Here, however, the story takes a turn for the worse.
I just did our taxes, and we owe the IRS close to ** nine thousand dollars.** That’s over and above what was already withheld from our paychecks.
Now, I consider myself an economic leftist, maybe even a socialist. And I don’t mean to argue that we’re paying more than our fair share. We have the money, because we’ve been saving up for a down payment on a house. But…Jesus H. Christ on a green rubber crutch, nine thousand dollars? In one big chunk, vanishing silently from our savings account?
Er…there aren’t going to be penalties on top of that because you didn’t have enough deducted are there?
Increase thy withholding, pronto! You don’t want to be in the same boat next year, right?
I’m not a financial tax wiz, but I feel your pain. We were repeatedly hit with owing more than we paid until we started taking deductions.
You can take $2000 per working individual and put 'em into IRAs. You can still do this for tax year 2000. This will lower your taxable income and save some bucks.
See a financial planner; sometimes banks will provide this service free of charge in order to get your investments. Don’t buy those financial planner books - generally their crap.
Secondly, Start your planning for 20001 now. There are some good cd instructions on tax preps which also show you were you can reduce your net taxable income for next year. There are also lists of average deductions for your income group. Charitable deductions average over $2,000 in your bracket.
Just make sure that the organization is recognized by the IRS as eligible: Planned Parenthood, PBS, medical research, social service programs. You can also feel good that you are giving much needed support to deserving agencies.
Third, buy that house and take the interest, points, tax deductions for next year. You can also take off on your second home mortgage. Have parents who might need assistance in paying off their mortgage? It’s the payor who
benefits just make sure that the majority of the money going for the mortgage is in interest and not principle. Generally the newer the mortgage the better in terms of tax deductions.
Fourth, get those teeth fixed, new glasses, stop smoking, etc. These are all deductible off your gross earnings minus whatever your insurance pays.
Plan for the future in terms of college education costs and your retirement [401(k)s, savings bonds which are used for education, municipal bonds… As for college education costs: see if you state has a prepaid plan which shifts the tax burden on the kids when they start drawing down the benefits [they’ll be in the pay no tax bracket at that time and will pay little if anything on the tuition plan].
You can reverse this situation if you start planning now.
Thanks for the advice. Fortunately, we escaped the penalty because our tax liability for 2000 was a lot bigger than for 1999. Apparently the regulations are written so that you get one free mistake, then after that you have no excuses, so they nail you.
I looked into the IRA deduction. Because Mrs. CG and I are both covered by employer’s retirement plans (and due to our income), we can’t take any IRA deduction. Fuck.
kiffa- umm, for most folks, their medical expenses are no longer deductable. Since they must exceed 7.5% of your AGI, few folks qualify.
City gent- there appears to be something wrong. It is my professional advice that you hie yourself down to a Professional Tax preparer and have him “review” your taxes. I suggest a CPA, or someone who is “enrolled to practice”, ie an “E.A.”- who are often a bit cheaper than CPA’s.
I repeat, and i word this strongly- as a Professional, my advice is: you REALLY should take you taxes to a Pro. Do not mail them in, do not write a check. Get them checked.
Note- for those standard wage-earners doing the EZ or 1040A- go ahead and do them yourself. But when you THINK you owe $9000, you are being extremely foolish to depend on your own expertise- no matter how educated you are. Would your wife try to take out her own appendix?
There- $50 of free tax advice from a licensed Professional- for free. Now, if you could just ask your wife about this rash i have…
While people who know something about taxes are chiming in… Can my husband and I file seprately even though we live together? If we file with the EZ as single we get 300 bucks more back. Is that possible?
Umm, yes- you can file “separate” (ie Married filing seperately") even tho married & living together- but not on a EZ. I suspect you are asking about both filing as ‘single’- and: no you can’t, and yes, the IRS will catch it.
I definetely agree with Danielinthewolvesden. Just have what you did checked out by a Pro. I’d throw a few bucks out versus thousands. Sleep better,too,knowing I just didn’t hand over money I might put towards tomorrow.
Actually, IIRC, if they withheld at least as much as you owed the previous year you were OK. Otherwise you had to have been close percentagewise. This meant of you got a big raise one year, you'd be OK.
