Owe taxes

[Beccagold]

Very frustrated! Did my taxes on TT and it looks like we owe $20k!!! I expected to owe around $6k from some stock we sold, and put that money into a CD. The extra $14 is from income, which is extremely frustrating! We only claim 1, and still owe. I have an emergency fund & a savings account, but this will do serious damage to our savings and in this economy it makes me nervous. Paid off our HELOC a couple of years ago, but kept it open. Interest is at 3.5%. Thinking about paying half from the HELOC, is that stupid?

[sweeps]

What percentage of your income is $20,000? If this has happened before, the IRS may penalize you for underwithholding.

[Beccagold]

Originally Posted by sweeps

What percentage of your income is $20,000? If this has happened before, the IRS may penalize you for underwithholding.

It's never happened before, just had a good year income wise. It's around 7-8% of income for 2008.

[creditcardfree]

Do you have the cash to pay it? I wouldn't borrow if I had the cash, otherwise your HELOC sounds like a great rate. Of course, don't borrow from a retirement account.

[Beccagold]

Originally Posted by creditcardfree

Do you have the cash to pay it? I wouldn't borrow if I had the cash, otherwise your HELOC sounds like a great rate. Of course, don't borrow from a retirement account.

I do have the cash and as I mentioned an EF. Just didn't want to do that much damage to the savings account. Was thinking of using the HELOC for half, but can't decide.

FWIW, have no debt besides mortgage.

[simpletron]

pay with the cash. if an emergency comes up and you don't have any cash then go for the heloc.

[creditcardfree]

I understand the apprehension with the economy and not wanting to take the hit to the EF. But, I think it would feel great to just pay that off and use the HELOC, when and IF needed.

Then start making a point to replenish that money and make a plan for next years taxes!! Good luck.

[Beccagold]

Thank you!

[mdcrim]

Beccagold-what about sinking some money into an IRA account to offset the burden? Last year I was going to owe $7000 but put $12000 into a SEP-IRA and ended up getting a little money back. My thought was I would rather pay me than the feds. Is that an option for you?

[Beccagold]

Originally Posted by mdcrim

Beccagold-what about sinking some money into an IRA account to offset the burden? Last year I was going to owe $7000 but put $12000 into a SEP-IRA and ended up getting a little money back. My thought was I would rather pay me than the feds. Is that an option for you?

Good question! I don't think so... I put over $15k in my 401k, and DH put over $13k in his 401k. I assumed that ruled out any other retirement account advantages. Does anyone know if I'm wrong?

[simpletron]

traditional IRAs are still deductable if you meet the income requirements. since you are filling married jointly and you both have employer's retirement plans, an AGI of 85K is the limit for full deduction with a phase out to 105K. I doubt you meet it, but if you do then you have until april 15 to contribute to IRA. and remember to tell them it is for 2008.

if you feel like it and your agi is under 159K(phase out to 169K), you can contribute to a roth IRA but there is no tax deduction.

[swanson719]

If you use the HELOC, you're adding the 3.5% in cost, when you could use your EF, have no extra cost, and then replenish the EF and use the HELOC if you absolutely have to. Why voluntarily pay 3.5% in fees for peace of mind when you just as easily can use it later?

[noppenbd]

Originally Posted by swanson719

If you use the HELOC, you're adding the 3.5% in cost, when you could use your EF, have no extra cost, and then replenish the EF and use the HELOC if you absolutely have to. Why voluntarily pay 3.5% in fees for peace of mind when you just as easily can use it later?

For me it depends on savings rate. If the EF can be built back up in 6 months I would pay cash. If not I would use the HELOC. The danger is you pay it off with your EF and lose your job the next day. Then the bank comes along and freezes your HELOC due to the job loss. You are then without an EF and no access to the HELOC.

Also, there is a loss when you use savings. For one you are losing the interest (admittedly not much these days). Secondly you are giving up liquidity.

[Beccagold]

Just to clarify: We have an EF seperate from our savings. The money to pay the taxes would come only from the savings account. My issue is that I'm not comfortable with my savings being depleted as much as it would be, but it does look like the better scenario.

Thanks again for everyone's help!

[carrieonthecheap]

Originally Posted by Beccagold

Just to clarify: We have an EF seperate from our savings. The money to pay the taxes would come only from the savings account. My issue is that I'm not comfortable with my savings being depleted as much as it would be, but it does look like the better scenario.

Thanks again for everyone's help!

well...isn't that what savings are for? To fall back on when you need cash that you didn't think you would need? sounds like the perfect use for some of your savings. If that helps...

I thought the idea of putting that money in an IRA was a great idea...but wouldn't you have had to do that back in 2008? So it probably won't help with this year's payment, but maybe if you're expecting a similar year for 2009, you could start up an IRA. I think the max for married couples in $10K.