Today is tax day – I hope you got everything taken care of! Like millions of others, I waited until the last minute. Last year, an estimated 35 million people filed their taxes in the final weekend leading up to tax day, and this year will be similar. Tax preparers and post offices will be open late tonight, some remaining open as late as midnight. (as long as your tax return is postmarked by midnight, you are on-time).
I filed and paid my taxes yesterday
I’ve been holding off on filing my taxes this year because I owed a lot of money – $1,100. Of course, I could have filed at any time as long as I paid by the April 15th deadline, but for some reason I held off on filing as well.
This is the first year I have had to pay the IRS. I normally receive a decent size refund, even though I usually withhold a fair amount of taxes. (to be fair, for several years I was in the US Air Force and was able to claim several months worth of salary as tax exempt because I served in a military combat zone).
Yesterday I drove to the post office after work to send my tax payment to the IRS. The parking lot was full and the line of cars was backed out into the street about 15-20 cars deep. I drove around the side of the building to the drop box. I’m sure my payment will be safe enough.
Predicting Tax Obligations is Difficult to Do
My wife and I owed a lot of money this year because our tax situation changed drastically from 2006. In 2006, I separated from the US Armed Forces and was unemployed for several months while I looked for new work. This lowered my pay dramatically form the previous year. My wife was in the military at the time and had several months tax exempt combat pay which she earned while deployed to a tax free zone. On top of that, we had some residential energy tax credits which saved us quite a bit of money. We had a nice refund last year.
This year, however, our situation changed again. I had a full time job and earned much more than the previous year. I also had a small amount of income I earned from my business. However, my wife changed jobs and took a $20,000 pay cut (quality of life is more important to us than money), and we didn’t have as much tax free pay or any tax deductions from energy credits. The result of all these changes was owing the IRS $1,100.
I’m not sure what we could have done differently to prevent this, as there were several factors we could not control or predict.
How will next year’s taxes turn out?
I don’t like paying the government a lot of money at tax time, but I also don’t want to give them a huge interest free loan every year. Ideally, my tax return would zero out every year, or at least come very close. But unfortunately, that isn’t always possible to predict, and it gets more complicated when you add in other factors.
I am looking for a new job, which may result in a salary adjustment. I have a small business (this blog and some other on-line ventures) that earns me a money which we now have to report. We also earn a money from from interest and dividends (which is difficult to predict). Then we have to factor in charitable contributions, 401(k) contributions, mortgage interest deductions, and other qualified deductions.
To put it simply, it is difficult to predict tax obligations, especially when your situation becomes more complicated. I will file quarterly estimated income taxes for my business, and I will also make some changes to my W-4 to (hopefully) prevent this from happening again. GenXFinance wrote a great guide on how to adjust your W-4 withholding.
Which do you prefer for your annual tax obligation – to pay or to receive?
As I already mentioned, I would prefer for my taxes to zero out every year. But no matter how much effort I put into it, I don’t see that happening because our situation changes throughout the year.
Some people prefer to owe a lot of money to the IRS. They prefer to use the money throughout the year and are not giving the IRS an interest free loan. The only downfall is coming up with the cash in April, which some people have a hard time doing.
Some people prefer to receive a large refund every year. They look at it as a forced savings account. Even though many people know they are giving the government an interest free loan, they don’t mind because they have a hard time saving on their own and look at a large tax return as “bonus money.” I had a good friend who did this every year. At least he knew he didn’t have the discipline to save on his own.
If you can’t make it zero out, at least get it close. A couple hundred bucks in either direction is usually the best bet. you don’t give the IRS too much of the money you could have had working for you, and you don’t end up owing them too much either.
Reader Poll: Which do you prefer – owing the IRS money, or a large refund?
- I would rather receive a large refund every year (66%, 1,713 Votes)
- As long as it is close either way, I don’t mind (28%, 723 Votes)
- I would rather owe the IRS a lot of money every year (6%, 179 Votes)
Total Voters: 2,615 (poll has ended – thanks for participating!)