I am screwed

[mamajoan]

The other day I did a quick-and-dirty test run on my tax return and came out owing the feds about $6000. Yikes! So I decided that I must have made some large mistakes, and that it must finally be time to get someone else to do my taxes for me. Last year was so complicated, it makes my head hurt thinking about it.

So yesterday I talked to an accountant my mom knows, and she agreed to do my return even though she's technically not taking any new clients...but after I explained the situation she said that the idea of me owing six grand didn't seem unlikely at all. AUGH! Particularly disheartening was her reaction when I said that once I went permanent at this job, I did my W-4 form in such a way as to maximize my paychecks, i.e., claiming the highest possible number of exemptions. She just kept saying "oh no, oh no." It was alarming.

Anyway, she's sending me some paperwork and she said that we'll do all the rigamarole to declare my bedroom a home office, which means that we can deduct part of my utilities and so forth. And hopefully it will all work out somehow. But I am not sanguine. In case you hadn't noticed, I don't exactly have six grand lying around. And after the $300-400 that she said it'll cost me just to have her do the return, not to mention what I still owe on my credit card from the holidays, I may be due for another trip to the poorhouse.

sigh. And this kind of shit is exactly why I never wanted to get into contracting in the first place. grumble grumble. arrrggghhh.

Comments

[vanessa-musing.livejournal.com]

this makes me very scared to even open up that can of worms for us... good luck with this, never a fun issue. I think the IRS offers a payment plan option, and I know they offer extensions, for nominal fees of course.

[mogwar.livejournal.com]

Extensions are only to file, not to pay. If you don't pay by April 15, there are penalties and interest. (That said, IRS does offer payment plans - you get to tell them how much you want to pay each month (as long as it is at least 1/36 of what you owe), which day each month you want to pay, and you can stretch the payments over three years. You have to apply and wait for approval from IRS to use this plan, but they pretty much approve anyone who isn't currently on a payment plan and doesn't owe from a prior year. They do charge interest and a small fee to use this plan.

(Be careful with the home office deduction, though. It can bite you in the ass when you sell the house, because it removes that part of the house from the personal use exclusion and that portion becomes subject to capital gains tax when the house is sold unless you meet certain conditions.)

[pandashrugged.livejournal.com]

You know, I've been on the IRS payment plan before. It was so good that when I had the money, I paid off other debts - and kept paying the IRS monthly. It was something ridiculous like 5% interest! It is true that if you paid way way way too little, they can penalize you - but not because you didn't pay by April 15th - the penalties are due with the taxes - it's for not paying quarterly or something. And I got on the payment plan just by calling the IRS. They were very nice, asked me how much I could afford, explained everything, etc. Overall, if I ever found that I owed a lot, I wouldn't hesitate to do it again.

[boniblithe.livejournal.com]

I did my W-4 form in such a way as to maximize my paychecks, i.e., claiming the highest possible number of exemptions.

I hate to add to your alarm, but I have to echo: oh, no ... please change that as soon as possible! My sister did the same thing at her first job. Luckily they do offer a payment plan. But there's just no way of getting around being screwed by the government these days *sigh*

[psychdyke.livejournal.com]

I'm shocked. Exactly how many deductions did you take, anyway??? Because in general, as a homeowner, head of household, two kids...you shouldn't have too much of a tax burden relative to income I'd think. I know I don't. And I've increased my deductions for the past couple of years, because my refunds were TOO big, and while I didn't want to owe a ton, I also didn't want the government having too much of my money for that long, when I could use it in my paycheck.

On the plus side, you can think of it as an interest-free loan you got from the government for the past year. :)

And other than that, just to echo the other comments: definitely consider revising those deductions; I think the ideal goal is that it works out to neither a refund nor owing taxes, or just a small amount in either direction. And also definitely rethink the home office - not only does it make taxes more complicated (thus making your accountant bill higher, for example), but it also makes it more likely to get audited, and hurts you if/when you sell. My mom does it, but her entire business is run from her home AND she has no plans to sell her house. I think that's the only circumstance I'd consider doing it, personally.

[mogwar.livejournal.com]

(She spent six months as a contractor, not an employee, which means that her employer didn't pay any social taxes for her, and she is responsible for all of those for that period, which is an extra 15% right there, before any income tax calculations. It adds up fast.)

That said, it's not an interest free loan from the government. If you owe too much at the end of the year, IRS can penalize you for underwithholding. It sucks.

[mofic.livejournal.com]

But presumably Joan was sending in money to the IRS quarterly while contracting.

[thinking-lotus.livejournal.com]

I think you should find an accountant who specializes in doing returns for contractors, because s/he will push you to find all possible ways to reduce your taxable income.

But yeah, you should probably have fewer deductions.

I never had that many issues with being a contractor but I did usually end up owing a bit.

You can pay the IRS with a credit card, preferably one with a low rate, ditto for state taxes, so you can shift the burden around a bit.

Usually penalties for underwitholding aren't shockingly high.

Anayway, sorry to hear about it, it's a bummer.

[eidna.livejournal.com]

I'm adding to the "oh, no!" chorus. Change that ASAP! I claim 0 on everything, because I'd be royally fucked if I had to pay at tax time.

[whuffle.livejournal.com]

Been here and done this in way to many directions. The past couple years were ouch. Halleyscomet's income last year was just high enough to bump us into a higher tax bracket. The year before that I was unemployed and job hunting for part of the year. The year before that we got married and got nailled by the infamous Marriage Penalty. I'm really hoping this year will be better. It will be our first year as homeowners with all the deductions that implies. We've both claimed as few allowances/exemptions as possible so that the govt takes as much as possible.

The years when i was contracting, I had to be super careful about deductions and exemptions and paying quarterlies. I actually had a separate savings account where I would set asside money from 1099 income to pay the taxes everny 3 months. At the end of the year, I would figure out how much I could put into my self-funded IRA based on what got me the best results on my taxes.

Yes, the IRS does offer installment payment options. If you can put this on a low-interest credit card instead, DO IT! The IRS installment plans come with a whole lot of strings and fees attached. AVOID IF POSSIBLE.

With all of that said, make sure that if you do itemize deductions so you can take off for things like a home office when you were contracting, that you also take off anything else humanly possible. I wrote off every play I saw, every magazine I received, and every book I bought at one point because for me they all qualified as "professional research sources". Did you drive for work while contracting? Take off the gas mileage and the parking fees. Was your phone or internet used for business? Take that as a deduction too. Basically if you are itemizing as a contractor, you should make the absolute most of it. So long as the deductions don't look out of line for your profession, you won't raise an auditor's suspicions.

In future if you contract, you should save, date, and give job info or purpose info to every receipt in your wallet as they get put in there. I used to literally file every receipt for an entire year so I could sort them all out to use as proof of the deductions in case I ever DID get audited.

For the record, I contracted for 10 years and was never audited once. Not even the year that I racked up and wrote off $800 in parking tickets.

[mofic.livejournal.com]

I hope it turns out to be less than you think. I'm glad you have an accountant, because she will be able to help you get all the deductions you can without going overboard into what you can't. Even with my taxes (which are much less complicated than yours) I've found that I save money by using an accountant and I curse myself for having done it for so long on my own. Oh, and you will be able to deduct her fee on next year's taxes.

If worse comes to worse and you do owe money, my understanding is that the IRS is very happy to work out a payment plan with you. So don't feel like you have to beg, borrow or steal to come up with it all at once.

[retch.livejournal.com]

eep, yeah, if you were taking maximum exemptions you need to have been setting aside a large % of your paycheck for your taxes.

HUG

[victoriacatlady.livejournal.com]

I too have been there and done that, years ago. For about five years I worked as a part-time contractor here. I started in August, and the tax owing for that year was some piddling little amount (because I only had a half-year income, of course). And stupidly I thought that that meant when I worked a full year I would owe twice that amount. Wrong. I did eventually pay it off, in monthly payments, but I didn't enjoy it.