Might owe federal taxes - please help

[frugalredhead]

With tax time rolling around, I am beginning to have this fear that maybe I didn't have enough tax withheld from my 2nd job, and we may wind up owing. I thought we received a $4000 refund last year for some reason, and now when I look I see it was only $1700. I thought the income from my 2nd job would simple offset my refund, but now I am concerned that I was wrong... I tried to plug in my numbers from my last paychecks (and guessed at my husbands, but we make just about the same amount) and am coming up with us possibly owing $4000. That could be horribly inaccurate due to my fudgy numbers, and I might be getting all worked up over nothing.

So that said, when the time comes to file, if in fact I do owe, what is the best way to remedy this for 2014? Obviously going forward for 2015 I need to change my withholdings, but what can I do now?

Right now I pay an extra $1300 a month on credit cards (above the minimum payments). Do I take that money and use it to just pay the taxes I owe?

I see that I have until April 15th to contribute to my 2014 IRA - do I contribute as much as I can (I think I could come up with the full $5500 by April 15) to that to reduce my taxes? Problem there is I don't know how much it will reduce them, and then I would still need to come up with the money to pay whatever I still owe (if I still owe anything).

Any other options that I am not aware of? I've never owed before so this is all new to me. Thanks for the advice! Hopefully I won't even need it, but I'm not feeling too confident about that!

[autoxer]

Owing taxes is not that big of a deal as long as you can come up with the money by April 15th. Even if you weren't able to come up with the money, they can probably offer some sort of payment plan. There is possibly penalties if you grossly underwithheld, but don't panic, just figure out how much you should withhold going forward.

First thing is figure out what your actual tax liability is compared to what you withheld, so you can set aside enough money to pay them. Are you familiar with Form 1040? Who did your taxes last year?

Try bankrate's calculator: http://www.bankrate.com/calculators/...alculator.aspx

[frugalredhead]

I do our taxes myself, since they've always been pretty straight-forward. Two kids, student loan interest and mortgage interest... no complicated investments or rental properties, or anything like that. I use Turbotax. Upon further research, it looks like we make too much to deduct IRA contributions anyway - MAGI is $146K.

[MonkeyMama]

I would halt the extra debt payments until you know for sure. The good thing is you have $1,300/month to save up and cover it.

Did you make sure to deduct any 401k payments of pre-tax benefits from your gross paycheck income? Can you compare your 2014 estimate to 2013 tax return to see if you are missing anything?

It's generally better to borrow the money from a credit card or just about anywhere than to owe the IRS. (Unless your credit is totally in the toilet and you have no borrowing options). Whatever you do, make it a priority to come up with any tax due by April 15th.

[autoxer]

Assuming married filing jointly with two dependents & standard deduction
AGI $146k - $ 12,400 standard deduction - $ 15,800 (4) exemptions = $117.8k taxable income, total tax due would be $ 21,163

Figure out what your itemized deductions will be, adjust the calculator and compare it to what was already withheld. You have three months to set aside enough money to cover last years taxes.

I just turned in a new W-4 to adjust my 2015 withholding. The worksheet is way too confusing, I just used a payroll calculator to figure out how many allowances I needed to claim.

http://www.irs.gov/pub/irs-pdf/fw4.pdf

[jIM_Ohio]

With tax time rolling around, I am beginning to have this fear that maybe I didn't have enough tax withheld from my 2nd job, and we may wind up owing. I thought we received a $4000 refund last year for some reason, and now when I look I see it was only $1700. I thought the income from my 2nd job would simple offset my refund, but now I am concerned that I was wrong... I tried to plug in my numbers from my last paychecks (and guessed at my husbands, but we make just about the same amount) and am coming up with us possibly owing $4000. That could be horribly inaccurate due to my fudgy numbers, and I might be getting all worked up over nothing.

So that said, when the time comes to file, if in fact I do owe, what is the best way to remedy this for 2014? Obviously going forward for 2015 I need to change my withholdings, but what can I do now?

Right now I pay an extra $1300 a month on credit cards (above the minimum payments). Do I take that money and use it to just pay the taxes I owe?

I see that I have until April 15th to contribute to my 2014 IRA - do I contribute as much as I can (I think I could come up with the full $5500 by April 15) to that to reduce my taxes? Problem there is I don't know how much it will reduce them, and then I would still need to come up with the money to pay whatever I still owe (if I still owe anything).

Any other options that I am not aware of? I've never owed before so this is all new to me. Thanks for the advice! Hopefully I won't even need it, but I'm not feeling too confident about that!

Always claim 0 or have extra witheld from the LOWEST paying job.

If you are married this is also true for the lower earning spouse.

[frugalredhead]

Assuming married filing jointly with two dependents & standard deduction
AGI $146k - $ 12,400 standard deduction - $ 15,800 (4) exemptions = $117.8k taxable income, total tax due would be $ 21,163

Figure out what your itemized deductions will be, adjust the calculator and compare it to what was already withheld. You have three months to set aside enough money to cover last years taxes.

I just turned in a new W-4 to adjust my 2015 withholding. The worksheet is way too confusing, I just used a payroll calculator to figure out how many allowances I needed to claim.
http://www.irs.gov/pub/irs-pdf/fw4.pdf

Thanks! I just did this and the calculator came out syaing I will owe around $2100. That's a lot less scary than $4K so I hope it's correct. I would need to have an extra $80 a paycheck taken out of my 2nd job's income if that is the case, which is disappointing, as that money is my credit card snowball, but it is what it is! Thanks for all the help everyone!

[jIM_Ohio]

Thanks! I just did this and the calculator came out syaing I will owe around $2100. That's a lot less scary than $4K so I hope it's correct. I would need to have an extra $80 a paycheck taken out of my 2nd job's income if that is the case, which is disappointing, as that money is my credit card snowball, but it is what it is! Thanks for all the help everyone!

What you should look at is your TAX BRACKET

If your second job increases your tax bracket, it might be a losers game as your main job could have you in 15% bracket, where as your second job might be pushing you to a higher tax bracket, penalizing your better paying day job.

http://fairmark.com/general-taxation/reference-room/2015-tax-rate-schedules/

compare your TAXABLE income on your tax return to the filing status and numbers in those tables.

For example, I file as head of household, and pay very close attention to whether my taxable income is is under $129,600 (25%) or over $129,601 (28%).

You are clearly focused on cash flow to pay down debt, which is a good thing. If you want to optimize cash flow and taxes, I might suggest thinking about a small business or working as a 1099 so you get writeoffs.

The single best way to reduce taxes is to own your own business. Then it's possible on half the income to pay way less in taxes. You might see a better cash flow as a result.

[corn18]

What you should look at is your TAX BRACKET

If your second job increases your tax bracket, it might be a losers game as your main job could have you in 15% bracket, where as your second job might be pushing you to a higher tax bracket, penalizing your better paying day job.

http://fairmark.com/general-taxation/reference-room/2015-tax-rate-schedules/

compare your TAXABLE income on your tax return to the filing status and numbers in those tables.

For example, I file as head of household, and pay very close attention to whether my taxable income is is under $129,600 (25%) or over $129,601 (28%).

You are clearly focused on cash flow to pay down debt, which is a good thing. If you want to optimize cash flow and taxes, I might suggest thinking about a small business or working as a 1099 so you get writeoffs.

The single best way to reduce taxes is to own your own business. Then it's possible on half the income to pay way less in taxes. You might see a better cash flow as a result.

Jim,

I thought that going into a higher tax bracket, only the income above the threshold was taxed at the higher rate? Not all of the income is taxed at the highest rate, just what is above that bracket's threshold. So if I made $150,000 AGI in 2014, only $1,049 of that is taxed at 28%.

Tom

[jIM_Ohio]

Jim,

I thought that going into a higher tax bracket, only the income above the threshold was taxed at the higher rate? Not all of the income is taxed at the highest rate, just what is above that bracket's threshold. So if I made $150,000 AGI in 2014, only $1,049 of that is taxed at 28%.

Tom

Tom, you are correct.

But how that applies to a dual income person (two jobs) is different than just the brackets.

Imagine a single person which has a job which pays $36k which is just under cap of 15% bracket. Their employer uses withholding tables and withholds at 15% bracket level.

Then that person takes a second job which pays $12k. That job withholds at 15% as well, and even extra withholdings from that, could not make up for the fact that $12k was just taxed at 25% (because $36k is the bracket cap).

If the second job is what put person in the higher bracket, realize that they would need to pay $3k in federal taxes on that income, when withholding tables would only have that at 15%.



If you look at a different example, where a person makes $70k per year single, so their tax tables withhold at 25% and that is "tax neutral", and the second job at $12k is still similar- the taxes must be witheld at 25% level (even though the withholding tables will tell employer to withhold at 15% level).

The higher income job generally should account for most of taxes paid, there is a special case where a second job pushes into a higher bracket that neither withholding table for either job knew about.

Guidelines-
when working two jobs
1) always withhold MORE taxes from lowest paying job
2) Make sure the highest paying job is withheld at tax bracket you are going to pay in

I've worked two jobs before, and never had an issue following those guidelines.

[corn18]

Tom, you are correct.

But how that applies to a dual income person (two jobs) is different than just the brackets.

Imagine a single person which has a job which pays $36k which is just under cap of 15% bracket. Their employer uses withholding tables and withholds at 15% bracket level.

Then that person takes a second job which pays $12k. That job withholds at 15% as well, and even extra withholdings from that, could not make up for the fact that $12k was just taxed at 25% (because $36k is the bracket cap).

If the second job is what put person in the higher bracket, realize that they would need to pay $3k in federal taxes on that income, when withholding tables would only have that at 15%.



If you look at a different example, where a person makes $70k per year single, so their tax tables withhold at 25% and that is "tax neutral", and the second job at $12k is still similar- the taxes must be witheld at 25% level (even though the withholding tables will tell employer to withhold at 15% level).

The higher income job generally should account for most of taxes paid, there is a special case where a second job pushes into a higher bracket that neither withholding table for either job knew about.

Guidelines-
when working two jobs
1) always withhold MORE taxes from lowest paying job
2) Make sure the highest paying job is withheld at tax bracket you are going to pay in

I've worked two jobs before, and never had an issue following those guidelines.

Now I understand. And that applies to me in spades. I have a military pension that I have set to 0 exemptions and it withholds a whopping $1,200 / year. That is more than enough to cover the tax due if I just made that much. But I have a job that puts me into the top of the 35% tax bracket (without the pension). I withhold at 0 on that as well, and that would easily cover the taxes on just my job salary. But put the two together and there is a significant shortfall at the end of the year. Your illustration is very helpful in understanding what is going on. I am under withholding 4% on my salary and a whopping 21% on my pension. No wonder my estimated taxes I pay are so high.

Tom

[jIM_Ohio]

Now I understand. And that applies to me in spades. I have a military pension that I have set to 0 exemptions and it withholds a whopping $1,200 / year. That is more than enough to cover the tax due if I just made that much. But I have a job that puts me into the top of the 35% tax bracket (without the pension). I withhold at 0 on that as well, and that would easily cover the taxes on just my job salary. But put the two together and there is a significant shortfall at the end of the year. Your illustration is very helpful in understanding what is going on. I am under withholding 4% on my salary and a whopping 21% on my pension. No wonder my estimated taxes I pay are so high.

Tom

If you fix the high paying job, and just make sure it is witheld based on the tax bracket you file in, your claiming 0 on the pension will likely be OK-

you have extra taxes withheld on lower paying job
you need to make sure highest paying job is withheld in tax bracket you file in.