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Finished Our Taxes – All I Can Say Is My Wallet Is A Lot Lighter Now.

Doing TaxesWell, our taxes are finally done…and we owe about $3,000 for our Federal return. Granted, this could have been really bad if I had not been setting a lot of money aside from my blogging income, but still – $3,000! There are a few reasons for owing this kind of money this year when normally we just about break even (which is what we always aim for, as I don’t like owing money and I don’t like getting a refund):

1. Blogging income really picked up in the past 3-4 months, and it is not taxed when it is paid out.

2. My wife’s payroll lady screwed up her paychecks. I still cannot fathom how this happened, but for some reason even though her paychecks say that she has 0 exemptions, the amount of taxes withheld from her check makes it seem like she had 2 exemptions all year. The W-4 she filled out asked for 0 exemptions, the checks say 0 exemptions, but yet the effective tax rate comes out to her having 2 exemptions. I am not happy about this and it is something that has to be discussed asap with the woman at her work that handles this. Am I supposed to do the math every week on her checks now? Ugh.

Oh wait, did I mention that the $3,000 was for Federal only? Yep, that’s right – we owe about $600 for California state taxes as well. Yippee! $3,600 in due taxes! I expected to owe money on my blogging income, for sure – and that’s why I set the money aside and continue to do so, so I can pay my quarterly estimated taxes this year. No biggie – that’s what happens when income does not get taxed through the year. But the screwup on the paycheck withholdings really irks me and if that had not happened, I would not have had to shell out $3,600 today to the IRS.

You live and you learn.

Other bloggers paying their owed taxes this week are Patrick from Cash Money Life($1100) and Lynnae from Being Frugal ($5300). Have you had any tax issues this year that you were prepared for? Did any of them come as a big surprise? Let me know!

Photo by Mat Honan


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Comments (18)

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  1. Patrick says:

    Ouch! Thank goodness you had the money set aside… but ouch!

    I had work hold out extra money from my paycheck this time, and I will pay estimated taxes on my blog earnings. Hopefully that will improve things next year! 🙂

  2. Mrs. Micah says:

    Since the government owes me a refund, maybe you can just send me part of that money. That’s how it works, right? 😉

  3. David says:

    Pretty much Mrs. Micah – the check is in the mail!

  4. Ginny says:

    Oh no, that really stinks! Luckily our earned income goes toward the taxes due on my ebay sales & other misc. income.

  5. Four Pillars says:

    Technically you got an ‘interest free’ loan from the government so you should be happy about that.

    🙂

    Mike

  6. david says:

    Not exactly – had to pay a penalty. 😉

  7. Wow! That’s really a hit!

    And they socked you with a penalty even tho’ you were sending quarterlies? What a bi***!!! How do they think you’re going to KNOW how much you owe on sporadic income without having a year’s worth to calculate a return?

    In addition to setting aside 30% of every freelance and windfall dollar to cover taxes, I also have my employer withhold an extra $50 per paycheck. So far, that extra withholding has worked to give me a small refund every year, even though when GDU went from bimonthly to biweekly pay I had to up the exemptions from 0 to 2 so that my salary didn’t fall below what I can live on.

    Your story, actually, is one reason I don’t do so much freelance work any more & haven’t tried to monetize Funny: who needs the hassle and grief from the IRS? For me, earning extra money outside the university became too much of a headache.

  8. Waitaminit…. Wouldn’t your wife’s employer be liable for whatever part of the penalties were created by the error on the withholding?

  9. David says:

    No, the penalty was because we underpaid – the big jump in income came in the last quarter so no quarterlies were paid.

    And no, they are no liable. I wish they were though.

  10. […] nor behind, sometimes it just doesn’t work out that way. Take for example tax year 2007 – we owed $3,600 because of a few issues – but at least I wasn’t giving the government an interest-free loan! If you are getting a tax […]

  11. Frugal Babe says:

    My husband and I have an S-Corp that pays us each a monthly paycheck as well as dividends. The paycheck has taxes withheld and shows up on a regular W2, but the dividends don’t have anything withheld at all. So to compensate we have extra taxes withheld on our regular checks, and I also have an extra $300/month withheld from my part-time job. But it was all guess and check last year, and we’re getting $3800 back. So now I’m reducing the amount that I have withheld on the checks from my part-time job, in order to hopefully get it a little closer to right this year.

  12. Concerning item #1, blogging is a hobby until it starts yielding some revenue. Then, it switches to a hobby/business. I find that a side business is useful for a variety of reasons, but many people overlook the necessary overhead of running even a small business. Whatever entity you use (e.g. partnership, etc.), you still need to make quarterly tax payments to our buddy Uncle Sam and to Arnold. While this can be a bit painful, I find that quarterly payments force a bit of discipline to company bookkeeping. Perhaps, this is the dull silver lining to staying current on your business taxes.

  13. FFB says:

    We had a huge surprise in taxes this year. Lucky for us it was money owed to us not that we owe the gov’t. It had to do with the fact that our son was born in 07 and my wife was out of work for a bit, and I never changed my W-2 from when we got married. We’ve recently adjusted our W-2’s so hopefully next year we’ll come closer to zero.

  14. david says:

    Now that is a nice kind of a surprise!

  15. PT says:

    We negelected to properly change our W-4s and we have a very similar tax bill. It stinks to pay this much out. Our’s even included a $51 penalty. Here’s hoping I made that while holding the govt’s money this past year.

  16. david says:

    Sorry to hear it PT – it stinks, but we live and learn I suppose!

  17. […] know I touched upon our tax issue briefly before, but this is a very important lesson to learn – either pay estimated taxes every […]

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