Anyone else get hosed on Taxes this year?

[Alistair]

Originally Posted by quickfeet

I am aware of the math of the taxes and I ended up paying the correct amount this year. I’m OK with all that.

Getting hosed is doing everything you’re supposed to do, owing taxes you didn’t anticipate, and being required to not simply correct it for this year but significantly over pay with no notice.

dgauthier covered the details.

These days, I just have my employer withhold an additional chunk each pay cycle to be sure we're closer to even with the IRS come April. Prior to that, we'd regularly be under-withheld (despite having two normal salaries with very little investment income most years). I assume because we're both high-earners that the bracket math just works out against us. So, $100/paycheck extra withholding seems to keep us square.

Could be worse - we've had years with enough investment income to trigger AMT. That's always hellish.

[dgauthier]

Originally Posted by quickfeet

We made a cross country move this year and updated the tax forms with our employers (we assumed) and somehow saw a HUGE swing in our taxes to where we owed several thousand dollars. To top it off, this somehow puts us into getting 1040-es quarterly payment vouchers for 2024 that we have to pay ON-TOP of the taxes already being withheld. These payments equate to double what we ended up owing this year. The best part is payment one is due April 15th as well meaning I need to pay another 50% of what I paid this year immediately.

Any tax people here want to give me their thoughts?

One needs the total of payroll withholding and estimated payments throughout the year to be enough to avoid an underpayment penalty. That's all.

To avoid an underpayment penalty, if one's adjusted gross income (AGI) is less than $150,000, the total of withholding and estimated payments must be either 90% of the current year's tax or 100% of the previous year's tax, whichever is less. If one's AGI is over $150,000, the total of withholding and estimated payments needs to be the lesser of either 90% of the current year's tax, or 110% of the previous year's tax.

See this page from the IRS:
https://www.irs.gov/taxtopics/tc306

There is no scenario I am aware of that would necessitate paying more than 100% or 110% of the previous year's tax during the year to avoid a penalty. You *will* have to pay whatever additional tax you owe in April however. So if in 2024 you will actually owe double what you paid in 2023, you will need to send a big check for that balance in April 2025.

It's nice to keep the taxes owed in your savings account, earning interest, provided you have the discipline not to spend it. You can really screw yourself if you don't have the money to pay your taxes owed come April 2025.

Your tax preparer probably set you up with large estimated payments so that you'll end up owing nothing. If you don't like the arrangement look into changing your estimated payments to give yourself a bit more breathing room during the year. Just remember anything you don't pay now you still have to pay later.

If you have questions, consult your tax professional.

[Ken Robb]

Originally Posted by quickfeet

We made a cross country move this year and updated the tax forms with our employers (we assumed) and somehow saw a HUGE swing in our taxes to where we owed several thousand dollars. To top it off, this somehow puts us into getting 1040-es quarterly payment vouchers for 2024 that we have to pay ON-TOP of the taxes already being withheld. These payments equate to double what we ended up owing this year. The best part is payment one is due April 15th as well meaning I need to pay another 50% of what I paid this year immediately.

Any tax people here want to give me their thoughts?

Do you prepare/file your own taxes? If so, do you use a program like Turbo Tax or something similar? Estimated tax payments were always tricky for me to calculate when I was a real estate broker because late-in-the-year deals closing or failing could make big changes in anticipated gross income. Sometimes the cause could totally beyond my control and something as innocent as my principals deciding it would be better for THEIR tax situation to close a deal just before or just after the end of the year.

I did my own tax returns in my youth when I wasn't earning much then had a tax attorney handle them for me. When I was selected for a compliance audit by the IRS I was SO GLAD to send him to meet with the IRS agent. Of course he was armed with every receipt, check stub, etc. they needed and they were all color-coded, alphabetized so he said it was the easiest audit he had ever handled. My wife was an excellent bookeeper and we avoided submitting any "iffy" red flag deductions like home office deduction, country club membership, etc.

Even though I have been retired for years we still have a tax preparer handle our returns because Leslie gets a salary as Director of Music Ministries at our church plus shegives private piano/organ lessons to 30-40 students and that is like running any other small business. Glad to say there is also investment income to deal with so we are very happy to have pro overseeing our tax compliance.

I guess I just wrote a generic advert/promotional piece for tax preparers but mine have helped me sleep better for years.