Money Mistake Monday – Not Paying Enough In Taxes Syndrome.

For the first time that I can remember, I owed money to the IRS for 2007 for underpayment of taxes. Granted, I should have known better and I should have paid more attention, but it kind of snuck up on me in the last quarter of the year. As has been the case since I was 18, my employer takes taxes out all year, trying to save me from owing money come April. But this year was different in that I made quite a bit of money from blogging and web design work in the last quarter of 2007 – and all of it was untaxed income. So while it did not seem like that big of an amount of money as the checks were coming in piece by piece, when I went to do my taxes it sure did accumulate quickly! Add in the fact that the accountant for my wife’s employer made a large error on her paycheck for the entire year, and we owed thousands of dollars in taxes this year. It was not too fun, seeing as how I have been (and still am) shelling out thousands for medical bills in the last couple of months. All of a sudden I owed about $7,000 to the IRS and the hospital – all in one month.

I know I touched upon our tax issue briefly before, but this is a very important lesson to learn – either pay estimated taxes every quarter or be sure to save enough money to pay the total come every April, along with the penalty that the IRS charges. And while I learned this lesson the hard way, this year I am definitely doing my part to avoid owing a lot of money come next year. I adjusted my withholding at my “real” job so that more taxes get taken out all year. My wife adjusted her withholding so it is actually correct. And I have set up estimated tax payments every quarter, payable out of a special ING account I have created just to hold money to pay taxes with.

It is much easier to pay as you go rather than having to come up with thousands of dollars every April. Don’t let my mistake become your mistake!

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Comments (6)

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  1. That is a good thing making all that extra money!

  2. Mrs. Micah says:

    I kept our withholding high so that hopefully next year we won’t owe anything in taxes. But I’m going to be reserving money just in case.

  3. Miranda says:

    This happened to me as well this year. And, of course, with the underpayment, you still have to pay first quarter taxes for my home business income at the same time. Ick! I made my husband up the amount that is being taken out of his monthly check in order to (hopefully) compensate so this doesn’t happen next year.

  4. david says:

    @ Mrs. Micah – We made our withholding higher too, but I don’t think it will cover the income. We have to save a bunch as well!

    @Miranda – Yea, that was a tough one – 1st quarter and the 2007 money owed. Don’t want to do that again!

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