We Finally Did Our Taxes – Sheesh!

Okay, so we didn't make as much in 2012 as we did in 2011 since Mr. BFS leaped into self-employment too.  But we paid about the same amount in taxes anyway thanks to having to pay the self-employment taxes on everything, which is the employer's part of social security taxes and whatnot.  YUCK!

Taxes, Yuck

We Knew It Was Coming

Yep, we knew we'd be paying a butt-load in taxes.  That's why we send in very healthy payments for our estimated quarterly taxes (and will continue to do so).  But it still hurts to see what you just wave goodbye to every year.  Specifically, we made about $100,000 in taxable income in 2012 after expenses and deductions.  We ended up owing about $33,000, but we paid in about $35,000 over the year.  So we're getting about $2000 back.  And the crowd goes wild (yay…feel the sarcasm).

I guess I should be way more excited that we at least don't have to pay the IRS any additional cash for 2012, but that slight bit of relief is pretty much extinguished for me since we have to send in our estimated quarterly taxes anyway.  Poop.

What We're Doing Now

Oh well, in happier news, we have just wired out more than $22,000 to pay off the rent house mortgage (just waiting for an official confirmation of some sort before writing that happy post, lol). Though some mortgage refinance companies are making that option really tempting right now.  That combined with more than $8000 going out for estimated quarterly taxes just makes me feel broke.  I mean, I think anyone would probably feel a $30,000 hit to their savings accounts, right?

That said, our 2012 refund is going directly into savings – do not pass Go, do not collect $200.  We borrowed $3000 from our savings account that we planned to invest in our Roth IRA's, so this $2000 is being used to pay ourselves back. By the way this is one of the best ways to invest money in your 20s too so don't ever think you're too young for IRA stuff.  Whatever extra we make in April will be used to build up that account even more since we do need $11,000 by the end of the year.  When we hit that goal, we'll have to look at our priorities and see how we want to proceed…

Options

If we want to pay less in taxes for 2013, we could open a SEP-IRA (Simplified Employee Pension).  We can contribute up to 25% of our total salary or 20% of our adjusted annual income, up to a limit of $51,000 in 2013.  So we'd be pretty safe from over-contributing if we keep it around $15,000 to $20,000.  And those would be pre-tax contributions like a 401k.  So we would not be taxed on the money we pay in, but we would be taxed when we make withdrawals in retirement.  We can balance those withdrawals in our golden years with the non-taxed ones from our Roth IRA's and be set.

BUT, saving an additional $20,000 a year for retirement would probably mean putting any further rent home ideas away for a while…stupid choices.  Nothing seems super easy when it comes to money after the basics, lol.

We may just use this year to re-pad all of our accounts.  We haven't been adding to our car account for a while even though both of our cars are mid-life at best – mine is a 2005 Chevy Aveo with 55,000 miles on it but it's always had issues, and hubby's is a 2007 Toyota Prius with 102,000 miles on it already. Also, our fun money and vacation accounts have been hearing crickets since mid-2012.

Anyway, our taxes are done thanks to some of the best tax preparation software, our rent house is paid off, and I will do a proper happy dance as soon as I have that deed in hand, lol.

How were your taxes this year? Did you check out our review of the best online tax filing services?  If you received a refund, where are you putting it? Here to help with any tax related questions though I won't claim to be an expert.

24 thoughts on “We Finally Did Our Taxes – Sheesh!”

  1. Mrs. Pop @ Planting Our Pennies

    What’s the penalty for over contributing to a SEP IRA? I was over the limit for a Roth IRA contribution one year before we got married and while it was a hassle to have to withdraw the contribution I made, there wasn’t any monetary penalty for it.

  2. SB @ One Cent at a Time

    Good for you. I still need to do our joint return this week end. I am not expecting anything back from IRS

  3. MikeS

    Ouch, the $33K is a big number. Even when I factor in SS and Medicare into my taxes for 2012, I don’t come anywhere near that number and I made about $97K in 2012. Even when I factor in state income taxes, it only comes out to about $12K. I did have a ton of deductions, so that helped quite a bit. I received about $800 back between state and federal and that went to pay off the medical bills I just got for my ankle.

    Deductions won’t be as high for 2013 and income is going to be higher (yeah bigger bonus), so the tax bill will be bigger next year. Still won’t approach yours though. That sucks.

  4. Jane Savers @ The Money Puzzle

    I am heading to the bank today with my $600 refund cheque. The Canadian government is desperate for us all to save for retirement and we get a healthy tax credit for every dollar we invest in a registered retirement savings plan.

    Glad to see you are saving for your next vehicle. I am also doing that and have received flack because I could get 0% financing and invest my savings.

  5. Michelle

    Taxes were fine this year, but I know they will be a major pain next year!

  6. TB at BlueCollarWorkman

    I hate taxes. Every year my wife and I know what ot expect, but every year I sort of hope that there’ll be a good surprise. There never is. It’s just what we expect, which is fine, but sucky. I hate taxes.

  7. Money Beagle

    Our tax refund generally gets allocated to a few different categories, specifically: Home Repair (aka the 2013 New Roof Fund), Kids Preschool and Activities Fund, Eventual New Car fund, Car Repair Fund, Travel Fund and Debt Payoff. It’s pretty boring, actually, but it works for us and helps us keep up on our savings goals at least to some degree.

  8. Linda

    My taxes were rather complicated this year since I was one of the increasing number of people affected by tax identity theft. Someone filed a 2012 return using my information, which means that I had to mail my tax forms off and am waiting for them to be manually processed. I am due a refund, but I may have to wait up to six months to get it. 🙁

    I usually get a refund of some type since I have the mortgage deduction and the business expenses associated with renting out a portion of my house. And every year I use whatever refund I get on house maintenance stuff. This year I need to have the landscapers back to cut the beds and add more mulch to the garden. That usually ends up costing me about $1800. I also will need to have the electrician out to address a malfunctioning porch light (I’m sure the wiring is messed up since it keeps tripping the circuit breaker when there is precipitation), perhaps move things around on the electrical panel, and install a new fixture in the kitchen. I’ve already had to replace the drain for the tub and sink in the first floor bath, and that cost me over $700. Houses are such money sinks.

  9. Leigh

    If I were you, I’d probably be putting at least some money into a SEP-IRA each year. You don’t have 401(k)s anymore and Roth IRAs at $11k/year for the two of you isn’t very much money being saved for retirement. How much were you saving for retirement back when you were both working in cubicles? I would consider coming up with a % to set aside for retirement and if that’s beyond the $11k/year for your Roth IRAs, put that into a SEP-IRA. I understand the resettling after moving and everything, so maybe that’s something to investigate in another 6 months?

    I got a bit of a refund this year (~>$1,000) and threw it entirely at my mortgage. Only 85% more to go!

  10. Leigh

    Er I guess what I was trying to say is that you don’t have to put the whole $20,000 into your SEP-IRA – you could just put $2,000 or $5,000! It’s not an all or nothing thing 🙂

  11. SavvyFinancialLatina

    Wow! Did I just read you paid off your house??? Congrats!!!!

  12. Crystal @ BFS

    @Mrs. Pop, I didn’t actually look into any over-contributing penalties…I just assumed I would want to avoid it, lol. Good to know that it’s pretty easy to just pull out the extra.

    @SB, good luck.

    @MikeS, I am just so thankful that Texas doesn’t have state income tax…

    @Jane Savers, if we get a 0% interest loan, I’ll just keep the cash to earn the tiny interest and pay it off in full during the last year. But we buy certified pre-owned vehicles, so I doubt we’ll ever get a 0% interest rate loan for them…

    @Michelle, ours will be even more complicated too.

    @TB, the feeling is mutual.

    @Money Beagle, boring is good. 🙂

    @Linda, I’m so sorry, that sucks! Why would someone use your info? I don’t see how that would help them at all…

    I sometimes feel that our homes are money sinks, but then I think of the money we spent on rent before and feel much better, lol.

    @Leigh, good point. I was saving 6% and being matched 6% in a 401k before (a total of $2100 a year from the $35k I was making) and my husband was a teacher, so he was going to have a pension supposedly. We should be covering those bases with $7500 a year or so into a SEP-IRA along with the $11,000 to the Roth IRA’s. I guess that will be our plan then, lol. Thanks!

    @Savvy Financial Latina, we just saw the wire go through today. 🙂 I’ll write a great post of pure happy as soon as I get that deed in hand…

  13. krantcents

    I am getting a bigger refund than expected and it goes back into savings.

  14. SEP-IRA sounds like an interesting option, provided that it contains the nuance necessary to save as much as possible, as you point out. Interesting post.

  15. Call Me What You Want Even Cheap

    Congratulations on paying off your rent house! I am doing my taxes today.

  16. Courtney @ FamilyGoneHealthy

    My husband is self-employed too and the taxes do suck. It can be pretty depressing to send in all of that money. Congrats on paying off the rental house!!

  17. Dominique Brown

    Welcome to my world.. paying taxes symbolizes you’re making good money :-). I would rather pay taxes than not have the money. We paid 40k in federal taxes alone 🙁 However, like my accountant says “Shut up, you could always make less money”

    Great job on the income.

  18. Meghan

    Congrats! I think I’m somewhere around the same on taxes, but I didn’t have enough taken out so I owe them. It’s okay, I’d rather make good money than no money and get a refund.

  19. KK @ Student Debt Survivor

    I hate doing my taxes. Lucky for me bf is a nerd and helped me. He does everything *old school* pen and paper. I did get about $1000 back this year. It’s going straight into my savings account so I don’t touch it.

  20. Joe

    Great job with your income in 2012. I just printed out our tax for final review. We only owe 600 this year so it’s not too bad.

  21. American Debt Project

    This was my first year of a decent amount of business income, so next year I HAVE to get a CPA. I am setting up the quarterly payments now and it’s all rather intimidating. But it’s nice to know I am making my own financial future, and not just relying on wages! Sounds like a SEP might be a great option for you guys…

  22. Mary Anne @ BillGuard

    You’ve raised a tough question — yes, you could contribute more to a SEP-IRA this year, but that would interfere with your ability to put more money towards real estate. Or, alternately, you could invest in real estate (which is “like” a retirement contribution in the sense that the money you make from real estate will help cover your bills in retirement), but you’d lose the tax advantages to making a “designated” retirement contribution in an “official” retirement account. It’s a tough call. (And by “tough call,” I mean it’s so confusing that you pretty much need an accountant to walk you through the consequences, based on your personal income and taxation levels.)

    Fortunately, you’ve got about a year to figure it out, as far as your 2013 taxes are concerned. That’s the silver lining, I suppose.

  23. Dividend Growth Investor

    I think that if you can afford it, it might make sense to max-out SEP-IRA’s ( which is about $20K for you), which would lower your taxable income by $20K, but would reduce your taxes by about $5000. I am not sure if you would qualify for a Simple IRA, given your high level of income.. But I think it makes sense for you to reduce taxable income today, and defer paying taxes 30 – 40 years from now. That’s what I decided of course, when I did my returns.

    Also, i live in a state with a 6% income tax. Yay ;-(

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