Let talk taxes!

[James!]

Hey Dudes.

So it's tax time again, and unfortunately this year it was a slap in the face to the tune of owing $4500. I'm curious to hear your thoughts on the following, and wherever else this goes.

Up until 2013 return I was just a DIY turbo-tax guy. Simple W2, itemized deductions once I bought a house, not much else.

For 2013 my wife and I hired a tax prep guy, who was a previous IRS auditor. We had an odd year but it worked out to a return.

I knew that our expected AGI for 2014 would be much higher, and I asked him about how to prepare. All he really said was adjust withholdings down on our W4 from our primary jobs and go for it. We had 20k of rental income for the year in addition to day jobs.

As we now know, that wasn't good enough and I owe for the year.

I'm not upset that I owe, per se. I'm upset that it was once again a mystery to me.

1) Who does your taxes?
2) When your tax return is complete, is the outcome (return/owe, and amount) a surprise to you, or did you know/plan for it?
3) Should I just be doing, or at least estimating, all this myself? If so, how?
4) If no to #3, who is the right person to advise on such things?

I anticipate starting a small business this year in addition to Airbnb income, my wife is on leave, then will work part time, we had a baby, investments, etc. 2015 return will be the most complicated yet.

This is a little venting and a little data gathering. If I'm an idiot, tell me so! I don't ever want to be surprised again by my tax bill.

Cheers,
James

[MarciaB]

Hey James,

You can play around with stuff on Taxcaster (free), and as your year goes along you can continually enter your numbers to see if you're on track with enough withholding. https://turbotax.intuit.com/tax-tools/

This tool has helped me understand how the moving parts of my return work together.

As you know, it's not the predictable stuff (like your day job) that's hard about the taxes, it's all the other less predictable stuff that's tricky (how much AirBnB rental nights will you have? How will your itemized deductions come out? Etc.)

[dunhamjr]

1) Who does your taxes?
2) When your tax return is complete, is the outcome (return/owe, and amount) a surprise to you, or did you know/plan for it?
3) Should I just be doing, or at least estimating, all this myself? If so, how?
4) If no to #3, who is the right person to advise on such things?

1. I do them.  They keep getting more complex with stock options, stock RSU's, rental income...etc. But I am still doing them.

2. I plan for it.  I have been trying to owe a little bit at the end of each year.  It is sometimes complex to plan for because for the past couple of years income has been going up larger amounts, and we have had a couple of kids.  This year was the worst though because I had a pleasant surprise in that the company I work for was sold and this causes a massive sellout of RSU's that I had waiting to vest.  The sale happened in December so that shot me in the foot for the year... no chance to recover.
Good for income, bad for tax planning since it pushed my AGI so high that this year I am missing out on a couple of deductions/credits/rental losses... so now I owe $4.5k, instead of just owing approx $500 as I had planned.

3. There are many calculators on the internet you can use.  You can also estimate using your past years taxes if nothing is going to change.  You can also run a 'what if' using your current year tax app with estimated 'next year' values.  This is what I had been doing.

4.  If you can't sort out the situation you can always talk to a tax pro/cpa... get a little of their time and sort out what your tax planning should be.

[MDM]

1) Who does your taxes?

We do.

2) When your tax return is complete, is the outcome (return/owe, and amount) a surprise to you, or did you know/plan for it?

Planned.

3) Should I just be doing, or at least estimating, all this myself? If so, how?

Yes.  See this post, and the whole thread around it, for some ideas.  Other good ones have also been suggested above.

4) If no to #3, who is the right person to advise on such things?
I anticipate starting a small business this year in addition to Airbnb income, my wife is on leave, then will work part time, we had a baby, investments, etc. 2015 return will be the most complicated yet.

Now you are changing the game, so it is even more important to plan correctly.  Someone - either you or your friendly CPA - should prepare an estimated 2015 return sometime soon, then update it once or twice during the year.  You'll want to check by, say, early November so you can adjust your December withholding if needed - payroll departments may need a longer lead time than you would guess.

[ltt]

Did you not have to pay estimated quarterly taxes on your rental income?  We have a CPA do ours, and if anything comes up during the year, we call her and she tells us how much to hold back for taxes (such as selling stock, etc.)  Typically, we would hold back 25 to 30%, so on your 20,000, at least $5,000?

[cynthia1848]

Ditto to LTT.  We have several businesses and always do estimated taxes.  That way we adjust quarterly.

[yoga mama]

1) Who does your taxes?
Until this year, I always did them myself on turbotax.  This year we finally had a recommendation for a tax preparer and used her.  It cost slightly more ($150) and saved us some time, but I had already gone through and put all the big stuff into turbotax and the result was approximately the same.  Next year I'm tempted to go back to turbotax although with kids, small business, possible sale of a home this year etc it is getting more complicated.

2) When your tax return is complete, is the outcome (return/owe, and amount) a surprise to you, or did you know/plan for it?
Unfortunately I am surprised.  I have a rough idea but am never sure.  This is something I should tackle and this thread is inspiring me to do so, thank you. 

3) Should I just be doing, or at least estimating, all this myself? If so, how?
I received a recommendation at some point from this forum to attend a tax preparation class that is offered by HR Block.  The poster said the one they took was intended for tax preparers and not the general public, and thus was probably longer and more detailed than many lay people would desire, but they found it extremely useful.  I've considered this but haven't looked into it yet.  Also, even if you don't file with turbotax, you can use their software online to put in your #s and tweak them here and there to give yourself an estimate.  Don't know if this would help you. 

4) If no to #3, who is the right person to advise on such things?
I always find the best service providers through recommendations and I find that they are usually very small/independent businesses who work out of their homes etc.  Can you ask around at work to find out if anyone has a tax preparer who they have used for a long time and has been very helpful to them?  Or among your friends? 

[irishbear99]

1) Who does your taxes?
2) When your tax return is complete, is the outcome (return/owe, and amount) a surprise to you, or did you know/plan for it?
3) Should I just be doing, or at least estimating, all this myself? If so, how?
4) If no to #3, who is the right person to advise on such things?

1) I do our taxes with TurboTax.

2) No, the outcome isn't a surprise. I keep a spreadsheet throughout the year that tracks income, taxes owed and taxes paid. I can (and do) adjust withholdings online up and down throughout the year as needed to get the numbers as close to $0 as possible. This year we will receive a net refund of $16 (Federal refund of $224; owe $208 to the state).

3) As said in #2, I keep a spreadsheet. I show actual income and taxes paid to date and estimated income and taxes paid for the rest of the year. I subtract out deductions and determine whether I'm on track to pay about what I should be paying every payday.

4) It's a pretty easy DIY, especially because you can google the tax brackets each year and simple maths can help determine your expected tax burden.

[Sibley]

OP, you sound like you're fairly comfortable with taxes, or at least willing to learn. Given that, go ahead and do them yourself. Things are generally stable year to year unless something changes, and you'll know so can do some research at that point. The first year of the rental is the shock, but you can use this tax return to help estimate next year's.