So, my taxes are being filed this week – and I owe money again. Granted, I would rather owe money than get a refund, for sure, as that would mean I gave the government use of my money interest-free all year long! Being self-employed certainly has its benefits in terms of working when I want and for how long I want, taking time off whenever I choose, and spending afternoons outside in the yard instead of stuck in a cubicle. But in exchange for such freedom comes the responsibility of paying taxes myself all year, as I don’t have an employer taking it out every week automatically. I also have to pay a 15% self-employment tax to cover what an “employee” would typically be paying into Social Security. On a regular old paycheck, the employer pays 7.5% and the employee pays 7.5%, but when you are self-employed you have to pay the entire thing yourself (although you can then deduct 50% of that in your taxes somewhere – I leave that to my brother the accountant).
So, where was I…oh yea, I owe money again this year. 2008 was a difficult year for us, as we moved – which started saving us money right away – and I was also trying to pay off over $10,000 in medical bills leftover from my cancer ordeal. When estimated taxes were due every quarter, which I have to pay because I don’t have taxes taken out all year, I had to make a decision – pay less in estimated tax but more on my medical bills, or pay more on my taxes and less on the medical bills. It was a tough choice, but after some careful thought and discussion, we decided to pay less taxes and try to get the medical bills knocked out. The penalty for underpayment of taxes is pretty small, but if you don’t pay your medical bills they send you to collections! In fact, one bill that I never received was sent to collections only 38 days after its due date. So in the end we decided to do our best to bust arse paying off the medical bills and to underpay our taxes for the year, at least until the fourth quarter of the year when I tried to make up for some of it by sending in a huge amount of money to the IRS. But alas, we still owe money come April 15th.
All things considered, the fact that we only owe $2,100 or so in Federal taxes is pretty good after the year that we had. We got our bills all paid off and managed to only owe a few thousand in taxes, which I will take. It could have been much, much worse! So come April 15th, I will pull money out of my taxes fund at ING Direct and pay both the money due for 2008 AND the estimated tax due for the first quarter of the year. For this year, I am aiming to come close to even on my taxes so I don’t owe much of anything (I am shooting for $500 max owed and/or refunded come April 2009), and I want to avoid the penalties for underpayment as well. I will be keeping a close eye on my earnings each quarter and making sure I pay enough to cover any and all taxes. And hopefully, knock on wood, I won’t have any more major medical issues come up which stopped us from paying them last year. However, getting that debt off our books and paid off was such a relief I would probably do the same thing again!
What about you? Have you ever had to make a decision like this? And if so, what did you do? As for your taxes, do you owe or are you getting a refund this year?