Tax musings?

[fryjack2]

Apr 3, 2022 10:34:26 GMT -5 mainelyfoolish said:

Apr 2, 2022 21:03:02 GMT -5 fryjack2 said:

jinkies , I'll sit on that bench with you. We owe 5 figures. We need to actually take our CPA's advice this year and pay quarterly because even though we withhold a ton, we still always have to pay.

If I get an expected yearly raise, it won't be that much but will bump us into the next tax bracket and the additional tax amount will increase by 3x what my raise will be ( if my raise is 10k for instance, our taxes will go up by 30k). No real point of the raise I know its not a bad problem to have, just stinks when writing the check.

Marginal tax rates don’t work like that. If the raise puts you $10k over the next bracket threshold, you only pay the highest rate on that $10k. 

If the raise makes your total income high enough that you are no longer able to take advantage of other deductions or credits and that makes your taxes increase by more than the raise amount, that does stink. 

Have I been looking at the tax brackets wrong and misunderstanding and informally miscalculating for years? We don't prepare our own anymore and they are a lot different than when I could just submit them myself using Turbotax.  But in general, there isn't much that helps us a lot. We are increasing our giving this year, but that has nothing to do with taxes, but might help. 

[boiler717]

Our taxes have been such a mess with withholdings, I need to figure out what to do with a CPA. My husband can’t seem to adjust his paycheck appropriately. We are getting back $8k federal (WHY??? We owed last year and didn’t change anything). We owe $2k state, and despite making the recommended quarterly payments, we still have an underpayment penalty. Doesn’t make any sense.

[mainelyfoolish]

Apr 3, 2022 18:38:41 GMT -5 fryjack2 said:

Apr 3, 2022 10:34:26 GMT -5 mainelyfoolish said:

Marginal tax rates don’t work like that. If the raise puts you $10k over the next bracket threshold, you only pay the highest rate on that $10k. 

If the raise makes your total income high enough that you are no longer able to take advantage of other deductions or credits and that makes your taxes increase by more than the raise amount, that does stink. 

Have I been looking at the tax brackets wrong and misunderstanding and informally miscalculating for years? We don't prepare our own anymore and they are a lot different than when I could just submit them myself using Turbotax.  But in general, there isn't much that helps us a lot. We are increasing our giving this year, but that has nothing to do with taxes, but might help. 

This article does a good job of explaining marginal tax rates: www.investopedia.com/terms/m/marginaltaxrate.asp

[ellipses84]

Apr 3, 2022 18:38:41 GMT -5 fryjack2 said:

Apr 3, 2022 10:34:26 GMT -5 mainelyfoolish said:

Marginal tax rates don’t work like that. If the raise puts you $10k over the next bracket threshold, you only pay the highest rate on that $10k. 

If the raise makes your total income high enough that you are no longer able to take advantage of other deductions or credits and that makes your taxes increase by more than the raise amount, that does stink. 

Have I been looking at the tax brackets wrong and misunderstanding and informally miscalculating for years? We don't prepare our own anymore and they are a lot different than when I could just submit them myself using Turbotax.  But in general, there isn't much that helps us a lot. We are increasing our giving this year, but that has nothing to do with taxes, but might help. 

My MM-self is embarrassed to say I was looking at them wrong for years…IDK why…my parents always made such a huge deal about getting bumped into the next tax bracket! I only realized it a few years ago due to this board!

[tealblue]

I finally got my husbands business stuff on Friday and spent hours trying to get this to work in my personal taxes.

I am a CPA (although it’s been so many years since I worked in public accounting) and hate using tax software! I have used Tax Act for years and now my husband has a k1 from the building his business owns (they pay rent to a building he owns) but it WILL not flow onto Sch e unless I click that he’s a real estate professional. I have now switched to Turbo Tax but gave up Friday night and need to get back to it.

I hate it so much. It makes a $2k refund difference which is needed as his primary business apparently made a lot of income this year. I also think we might have phased out of the ability to deduct the rental loss but also confused on that.

[jwright]

Apr 4, 2022 10:24:08 GMT -5 tealblue said:

I finally got my husbands business stuff on Friday and spent hours trying to get this to work in my personal taxes.

I am a CPA (although it’s been so many years since I worked in public accounting) and hate using tax software! I have used Tax Act for years and now my husband has a k1 from the building his business owns (they pay rent to a building he owns) but it WILL not flow onto Sch e unless I click that he’s a real estate professional. I have now switched to Turbo Tax but gave up Friday night and need to get back to it.

I hate it so much. It makes a $2k refund difference which is needed as his primary business apparently made a lot of income this year. I also think we might have phased out of the ability to deduct the rental loss but also confused on that.

I assume the K-1 is showing a loss for the rental business?  It's defaulting to passive and you can only offset passive losses with passive income.  So if he's not a real estate professional and the activity is indeed passive, then the loss may be disallowed and that's why you are not seeing it on Sch E.  You can deduct up to $25,000 in passive losses if you modified AGI is less than $100,000 (the so-called "little man's rule). 

[brooke77]

We owed about $7500 between federal and state. My H took on some part-time consulting work as a 1099, so not completely unexpected.

[wanderingback]

I finally got all my tax documents and sent them over to my accountant. I have 3 W2s and about 10 1099s. It was a lucrative year for me, the most money I’ve ever made, so I’m afraid I’m going to owe. But thankfully for the income.

I need to go through and organize my business expenses though. Of course at the beginning of 2021 I told myself I was going to be diligent about tracking every month and that didn’t happen, ugh. I think last year it only took me a few hours to go through, so it shouldn’t be so bad once I start. I know it makes a different in what I owe so just gotta suck it up and do it!

[ny96]

We owe about 6k. We knew we were going to owe because of under withholding, but chose not to make quarterly payments and keep investing our extra money. It paid off, our penalty is only $42.

[tealblue]

Apr 4, 2022 12:19:23 GMT -5 jwright said:

Apr 4, 2022 10:24:08 GMT -5 tealblue said:

I finally got my husbands business stuff on Friday and spent hours trying to get this to work in my personal taxes.

I am a CPA (although it’s been so many years since I worked in public accounting) and hate using tax software! I have used Tax Act for years and now my husband has a k1 from the building his business owns (they pay rent to a building he owns) but it WILL not flow onto Sch e unless I click that he’s a real estate professional. I have now switched to Turbo Tax but gave up Friday night and need to get back to it.

I hate it so much. It makes a $2k refund difference which is needed as his primary business apparently made a lot of income this year. I also think we might have phased out of the ability to deduct the rental loss but also confused on that.

I assume the K-1 is showing a loss for the rental business?  It's defaulting to passive and you can only offset passive losses with passive income.  So if he's not a real estate professional and the activity is indeed passive, then the loss may be disallowed and that's why you are not seeing it on Sch E.  You can deduct up to $25,000 in passive losses if you modified AGI is less than $100,000 (the so-called "little man's rule). 

Yes it is passive rental loss. I assumed it should still be reported on Sch E somewhere but then the deduction is disallowed (and loss rolls over to the future?) - it’s not even appearing anywhere. The accounting firm who does the other partners taxes did include it as a loss on their personal taxes … although they are around the $150k AGI and we are around $175k.

I don’t think I should be able to deduct it, and you’ve confirmed it but I am worried it should still be reported and rolled forward to be taken in the future. Or I would get a notice from the IRS if they have a copy of h’s K1 and it doesn’t report on our taxes anywhere.

[jwright]

Apr 4, 2022 15:47:16 GMT -5 tealblue said:

Apr 4, 2022 12:19:23 GMT -5 jwright said:

I assume the K-1 is showing a loss for the rental business?  It's defaulting to passive and you can only offset passive losses with passive income.  So if he's not a real estate professional and the activity is indeed passive, then the loss may be disallowed and that's why you are not seeing it on Sch E.  You can deduct up to $25,000 in passive losses if you modified AGI is less than $100,000 (the so-called "little man's rule). 

Yes it is passive rental loss. I assumed it should still be reported on Sch E somewhere but then the deduction is disallowed (and loss rolls over to the future?) - it’s not even appearing anywhere. The accounting firm who does the other partners taxes did include it as a loss on their personal taxes … although they are around the $150k AGI and we are around $175k.

I don’t think I should be able to deduct it, and you’ve confirmed it but I am worried it should still be reported and rolled forward to be taken in the future. Or I would get a notice from the IRS if they have a copy of h’s K1 and it doesn’t report on our taxes anywhere.

Do you have a Form 8582? That’s where passive losses are reconciled. If it’s disallowed it’s not on Sch E.

[tealblue]

Apr 4, 2022 16:26:02 GMT -5 jwright said:

Apr 4, 2022 15:47:16 GMT -5 tealblue said:

Yes it is passive rental loss. I assumed it should still be reported on Sch E somewhere but then the deduction is disallowed (and loss rolls over to the future?) - it’s not even appearing anywhere. The accounting firm who does the other partners taxes did include it as a loss on their personal taxes … although they are around the $150k AGI and we are around $175k.

I don’t think I should be able to deduct it, and you’ve confirmed it but I am worried it should still be reported and rolled forward to be taken in the future. Or I would get a notice from the IRS if they have a copy of h’s K1 and it doesn’t report on our taxes anywhere.

Do you have a Form 8582? That’s where passive losses are reconciled. If it’s disallowed it’s not on Sch E.

Thank you so much! I did have an 8582 when I did this on tax act and I see it there!

You are a sanity saver it’s been 12+ years since I was in public accounting and (not that I didn’t care) but didn’t care as much since it wasn’t my own money and needing to know exactly where it all goes so I don’t lose my carryover in future years.

[sometimesrunner]

Apr 3, 2022 19:48:17 GMT -5 boiler717 said:

Our taxes have been such a mess with withholdings, I need to figure out what to do with a CPA. My husband can’t seem to adjust his paycheck appropriately. We are getting back $8k federal (WHY??? We owed last year and didn’t change anything). We owe $2k state, and despite making the recommended quarterly payments, we still have an underpayment penalty. Doesn’t make any sense.

Maybe the increased child tax credit and dependent care credits? 

[smock]

I'm having cascading MM tax failings over here. We're trying to maximize our retirement contributions, but one of Mr. Smock's freelance clients gave him a W2 instead of a 1099. Which means he way overcontributed to his self employed retirement account.

We got that straightened out, but now our MAGI is too high for the Roth IRA contributions we made. Which means more paperwork. This is the most we've ever made, and I'm thinking it's time to get someone else to prepare our taxes instead of doing it myself.

[moonpie]

smock how did you end up dealing with the ira contributions?

We are in a similar situation. Dh had a retention bonus that was paid out early. Unfortunately it caused us to blow through the income limits for a Roth. I need to call fidelity today to see what my options are.

[midwestmama]

Regarding the Fed tax penalty for under-withholding... This is the second year we've had under-withholding for Fed taxes and he's concerned that puts us at greater risk for being audited. Does anyone know if that's true?

[smock]

Apr 6, 2022 8:25:17 GMT -5 moonpie said:

smock how did you end up dealing with the ira contributions?

We are in a similar situation. Dh had a retention bonus that was paid out early. Unfortunately it caused us to blow through the income limits for a Roth. I need to call fidelity today to see what my options are.

We're with Fidelity too! There's a form you need to fill out and send in. It requires an actual ink signature. They'll calculate any earnings and send you a secure message to let you know how many holdings to liquidate. Apparently it happens all the time, so it's a pretty straightforward process (thankfully, because I'm about at my limit for figuring out tax related stuff).

www.fidelity.com/bin-public/060_www_fidelity_com/documents/customer-service/IRA-return-excess-contribution-request.pdf

[smock]

Apr 6, 2022 9:17:23 GMT -5 midwestmama said:

Regarding the Fed tax penalty for under-withholding... This is the second year we've had under-withholding for Fed taxes and he's concerned that puts us at greater risk for being audited. Does anyone know if that's true?

I've seen it pop up on lists of things that can trigger an audit. I'm not sure it matters if you underpay by a little or a lot, but I've been overestimating my quarterly payments to prevent an under-withholding penalty.

It's ridiculously hard to estimate when your income changes (and with changes to tax rules!). As a result, we've gotten pretty big refunds the past two years, but I figure if I get audited maybe the IRS will see that I'm not trying to underpay? 

But overall, less than 1% of returns get audited, so chances are you'll be fine.